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FIGHTING THE MOBILE WALLET WARS
I
n our time covering the payments industry, we’ve seen massive upheaval and a move towards the digitization of payments.
From banking, remittance, business management, to paying for goods and services, payments leaders are finding that consumers and end-users are clamoring for mobile access, less friction, and greater security.
Felix Shipkevich FOUNDER
Kevin Xu EDITOR-IN-CHIEF
In this issue, we’ve received a wide range of opinions from payments leaders just like you, and mobile payment is the Apple-shaped elephant in the room.
kxu@lamilmedia.com
Mike Dautner From Apple, PayPal, Samsung, to Google, entrants old and new are vying for a slice of the pie.
ASSISTANT EDITOR
Apple Pay is the runaway leader, no doubt thanks to massive brand awareness and the loyalty of Apple fans. Apple has quickly dethroned other competitors by linking with major card networks and quickly expanding outside the United States.
Jason Mongiello
mdautner@lamilmedia.com
DIRECTOR OF MARKETING jmongiello@lamilmedia.com
Erik Ramirez While the old adage, ‘competition is good’ certainly applies here; we’ve yet to see how competitors can completely dethrone the new leader in mobile, but the rest of the year should provide ample time for others to gain a foothold. Mobile banking and B2B payments are ripe for disruption as well, and your voices are being heard. As mobile becomes the main touch point for consumers and business owners, there are opportunities here to completely change how your customers interact with, and manage their finances. The status quo is changing dramatically pertaining to the payments industry and mobile is just one small piece of a very large puzzle undergoing a transformative change.
GRAPHIC DESIGNER eramirez@lamilmedia.com
CONTRIBUTING WRITERS Terry Hartmann
Edward Black III
Dr. KF Lai
George Avetisov
Jon Prideaux
Michael Hagen
David Bozin
Steve Cook
Robert O. Carr
Matthew Katz
Marcus Treacher
Shan Ethridge
Carol Juel
Daria Rippingale
Rich Aberman
Sameer Kishore
Stephen Sheinbaum
The rising tide of innovation is disrupting all modes and methods of payments… and in the end; a rising tide lifts all boats.
We hope you enjoy Payment Quarterly, Kevin Xu
Editor-in-Chief Payment Quarterly | August 2015
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Payment Quarterly | August 2015
TABLE OF CONTENTS
Q3 - AUGUST 2015
MOBILE WALLET WARS 6
5 tips to make authenticating transactions easier in the modern world
8
banks need to be more proactive with their customers in mobile banking
10
the payment genie
14
why digital wallets are the payments of the future
16
the next step for mobile wallets: general-purpose platforms
BIOMETRICS 38
balancing security and usability during mobile transactions
41
the changing face of mobile payments
VENTURE OUT! 44
25
28
5 innovative payment startups
THE EMV EVOLUTION 50
2 months and counting to emv deadline: are you ready?
52
like it or not, emv is imminent!
FINANCIAL INSTITUTIONS 20
Vol. 1 | No. 3
are mobile payments poised to revolutionise global business?
GLOBAL PAYMENTS
disruptive technologies add excitement to payments industry
54
exclusive q&a with raymond qu founder and ceo; geoswift
B2B & MERCHANT TOOLS
57
the eurozone’s new SEPA rules will impact merchants worldwide
60
catering to the international traveler: U.S. merchants can tap into buying power of millions of tourists
platforms are the new omnichannel
31
new product gives processors a funding foothold again
32
why lending and analytics go hand in hand
PAYMENTS SECURITY 34
helping merchants understand pci
36
overcoming the threat of mobile wallet fraud
DIGITAL BANKING 63
the digital banking transformation: are you focusing in the right direction?
Payment Quarterly | August 2015
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5
TIPS TO MAKE AUTHENTICATING TRANSACTIONS EASIER IN THE
MODERN WORLD T TERRY HARTMANN Vice President Unisys Security Solutions
he launch of Apple Pay last year was a welcome addition to consumers’ payment option arsenals. Already, many people had become accustomed to the contactless world and the joy of purchasing a cup of coffee simply by ‘tapping’ bank or credit cards on a reader to enable a simple, low value transaction. Now, they could also pay simply by placing their phone near an Apple Pay contactless reader, and authenticating the payment via their thumbprint. Despite these improvements to card and mobile transactions, mobile banking has had a hard time keeping up. In most cases, when trying to access your bank account from a mobile device, you still need a user ID, a password, and answers that you submitted to memorable questions, such
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Payment Quarterly | August 2015
as your favorite food or a first pet’s name. Moreover, for some providers, you still need to carry around a card reader, a token, or a key fob in order to key in a one-time passcode to get authenticated; or decode a picture you see on the screen to prove you are not a robot. These are the traditional two factors of ‘something you have’ and ‘something you know’ and from a customer experience perspective in an ever-connected world, it’s less than ideal, as is having to enter complex password combinations of letters and numbers and special characters on cell phone keypads. So how can banks make this process easier? Gartner predicts that 30 percent of organizations will use biometric authentication for mobile devices by 2016, but this alone is not a silver bullet. Beyond the traditional first and second factor techniques, there are a number of additional elements that can support reliable authentication. Aspects such as location, timing, behavioral data and social networks can all be brought into play to support seamless authentication and frictionless banking for an improved customer experience.
1
LOCATION, LOCATION, LOCATION
Y
our IP address, GPS location and mobile cell sighting are great examples of rich location data that can be captured and compared to create patterns of behavior that can help validate transactions. For example, if you spend most of your time in two single locations such as home or work, and you decide to transact within this area, there’s a higher probability that it’s a genuine transaction than one made at a location you don’t normally visit. In addition, location information can be mapped against time of the day, or day of the week, to build a more detailed pattern of customer behavior.
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R
HARNESS CUSTOMERS’ DIGITAL FINGERPRINTS
egardless of the device customers use to access their account, it will have a unique MAC (Media Access Control) address that identifies it on a computer network. When combined with the hardware and software configuration of that device, as well as other information exposed through cookies, collection drivers or agents, we can create a ‘digital device personality’ that makes each customer uniquely identifiable.
4
LOOK FOR THE PATTERNS
C
onsistencies in behavior are identifiable by the times of day, week, or month that we tend to operate.
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W
Humans are generally creatures of habit, and accordingly it’s typical that we fall into a pattern for our banking and other transactional financial services. If you are operating within these ‘peak’ hours which are unique to you and your lifestyle, then it creates a lower risk score than if outside of your prime hours.
GET DOWN TO THE BIOMETRIC BASICS
ith the number of smartphone users worldwide expected to exceed 2 billion by 2016, this provides a rich potential source for biometric capture capabilities like fingerprint scanners, iris scanners, facial and voice recognition, which can significantly cut down the time required to authenticate access. Let’s also not forget wearable technology, which is predicted to boom over the next few years. This further unlocks possibilities such as cardiac rhythm identification, using your heartbeats which are as unique to you as your fingerprints - to verify your identity. Although physical biometrics can offer a further step-up challenge to a customer, it is a simpler task than having to remember PINs, passwords or carry around a token. These can be stolen which leads to identity theft fraud, whereas biometrics are not easily compromised.
Additionally, we all operate with a unique pattern when navigating a website (page sequence, click speed, dwell time). We use a key rhythm when typing (speed between characters, pressure, linkage between keys) and when interacting with touch screens (pressure, swipe speed, acceleration). All of these factors can be measured to create a device usage profile(s) that is distinctive to each user.
5
EXPLORE CUSTOMER NETWORKS
S
ocial media profiles provide a rich insight into the personal lives and preferences of customers. For example, if a customer is linked to a large number of people whom the bank recognizes as having a high trust score, that individual’s score is also more likely to be trusted. And even though it is relatively easy to create a fraudulent social media identity, there are an increasing number of tools designed to score the legitimacy of social media profiles.
Payment Quarterly | August 2015
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The secret to success in implementing authentication techniques is to use best of breed packaged applications, which have high-quality data capture and a seamless user experience. For banks especially, the winners will be those who can take a holistic approach, give customers some flexibility choice on how they authenticate themselves, and build risk factors to balance risk with confidence. To be effective, this also needs to include a simple enrollment process, life-cycle
BANKS NEED TO BE MORE PROACTIVE WITH THEIR CUSTOMERS IN MOBILE BANKING Dr. KF Lai, CEO and co-founder of mobile advertising network Buzzcity, discusses findings from BuzzCity’s latest mobile banking research and the implications for banks offering mobile transaction services.
management workflow.
and
automated
Finally, with the large amount of data generated by each of these authentication measures, banks should ensure that properly calibrated risk engines are in place that create a weighted-risk score based on each of the authentication factors, relative to the value of the transaction. For example, checking a balance is a low risk activity - so would therefore have a lower risk tolerance, but greater
A
recent survey of over 3,300 mobile customers has revealed that more people than ever are using mobile devices to make payments. In fact, the number of people using this method for transactions worldwide has overtaken those using debit and credit cards – and in no fewer than 17 of the 23 countries included in the research mobile banking is more popular or equally popular as card payments. The strongest recent adoption has been in Asia, where India, Philippines, Thailand and Sri Lanka have all seen strong growth in mobile as a means of making payments. Despite this meteoric surge in mobile payments, banks seem to be missing a trick when it comes to informing customers about the services and technology available to them; fewer than 20% of customers hear about mobile
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Payment Quarterly | August 2015
authentication measures would be required for any high-value dollar funds transfer transaction. Multi-factor authentication offers a huge opportunity to reduce the friction of modern banking, prevent identity theft, and provide the enriched experience that customers are increasingly expecting. At the end of the day, if the customer experience is truly frictionless, then continuous authentication becomes nirvana.
banking directly from a mobile advert or their bank. While most mobile surfers are now using mobiles to complete financial transactions, banks could be in danger of alienating users when adding new features and releasing upgrades to services - because not enough people are being exposed to information about the services available on their device. 64% of mobile banking customers still use cash to pay either at the store or upon delivery rather than making direct transactions from their device. By directly addressing customers through their mobiles, banks can not only ensure higher uptake among those who are reluctant to make payments on their device, but also inform users directly of any changes to the service, updates or added security measures.
At present, nearly half (42%) learn about mobile banking opportunities via TV compared to the 16% who actually learn about it on their mobile device. This means that banks are simply failing to sufficiently communicate on the very platform on which they are offering their services. As seen by the USA’s apparent reluctance to adopt mobile as a method of payment (16% of Americans use it, compared to 19% using card payments), the resistance to mobile banking is not closely related to technological availability – but perhaps more of an oblivion to the services that are open to them and a heavy loyalty to “tried and tested” methods such as cash and card payments. With more banking services targeted directly at mobile devices and users - coupled with greater security mechanisms - mobile payments will continue to rise
and eventually wholly usurp card payments and cash to become the most popular method of transactions worldwide.
ABOUT BUZZCITY BuzzCity is a mobile advertising network that offers brand owners and agencies access to a global display network of publishers. As a leading international player, BuzzCity has developed in-depth knowledge of the mobile consumer and provides marketers with clear opportunities to reach this audience via its advertising and publisher programmes. The network also offers opportunities for publishers, developers and owners of mobile media properties to monetise their traffic through mobile internet advertising. Additional information www.buzzcity.com
can
be
found
Payment Quarterly | August 2015
at
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MOBILE WALLET WARS
THE
PAYMENT
GENIE
by JON PRIDEAUX CEO Boku
O
nce upon a time there were three ambitious entrepreneurs and potential cofounders with one vision: create a new form of payment with the power to unseat Visa, MasterCard, Paypal, and the like. They knew that they would need to compete with the established players in three key areas if they Wwould succeed: scale, ease, and price. No small task and, frankly, they had not a clue where to start. its clamshell.
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Payment Quarterly | August 2015
As luck would have it, one day the three entrepreneurs stumbled across a golden phone (a simple feature phone – nothing fancy. Well, save the gold). The first entrepreneur picked up the phone and, finding it a bit dirty, rubbed the small screen on the outside of its clamshell. After one quick wipe, the phone began to glow, followed by a plume of smoke pouring from its insides. The entrepreneur quickly dropped the golden phone and joined his associates in slack-jawed awe as a towering figure, half man/half smoke, appeared before them. “I am the genie of the mobile realm,” said the figure. “I am endowed with the power to grant you three wishes.”
The entrepreneurs could not believe their luck. In their minds they quickly connected the dots: “We have three problems. He’s offering three wishes. Jackpot.” “HOWEVER,” boomed the genie, “I have one rule: all of your wishes must operate within the rules of this reality. No time travel, no flying, no wishing for more wishes. Draws too much attention.” “Understood,” said the first entrepreneur – still not believing his luck. “I think we know our wishes already. May we get started?” The genie nodded.
Payment Quarterly | August 2015
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MOBILE WALLET WARS
1st wish “For my first wish, I would like to create a payment system so disruptive that it has more potential users than either Visa or MasterCard.” “Done.” Said the genie and, with a poof, a simple mobile device appeared before the entrepreneur – not unlike the gold one the genie called home. “I’m not sure I understand,” said the entrepreneur. “Mobile phones aren’t disruptive– certainly not this one. It isn’t even a smartphone. Half the world’s population already has a phone like this or better.” “And what portion of your world has a credit card?” Asked the genie with a knowing smile. After a moment, light dawned on the entrepreneur and the corners of his own mouth soon caught up with the genie’s. Phones outnumbered credit cards by more than 3 to 1! As the first entrepreneur luxuriated in his genius wish, the second entrepreneur barged in.
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2nd wish “I want you to make our payment method the easiest and most convenient ever, and not just on mobile, either. If you let people pay with a tap anywhere they want, they’ll never want to go back to entering all that credit card information.” Again, the genie nodded and smiled. “Your second wish is granted.” The mobile in the first entrepreneur’s hand buzzed to life and glowed, projecting its phone number into the sky. “Of course!” Said the second entrepreneur. “Using the phone number and billing everything through the carrier will make payment a breeze. People won’t even have to register. Why didn’t I think of that?”
Payment Quarterly | August 2015
The Final Wish The third and most ambitious entrepreneur spoke next. “Genie, I wish that our new mobile payment method was the least expensive for merchants to use.” “Not so fast,” said the genie. “Remember my one rule – you cannot violate the laws of your own reality. Your first two wishes were fine – half the world already owns a mobile device and the phone number is a much simpler payment mechanism than a credit card. However, you cannot simply wish your way to lower fees.” “Ugh…what a waste. We will never compete with credit cards if we are charging merchants higher fees.” Said the dejected entrepreneur.
“I am but a humble genie, but may I offer an opinion?” The dejected entrepreneur shrugged and nodded.
Cheques are more expensive than cash, cards are more expensive than checks, and PayPal is more expensive than cards.”
Each of the entrepreneurs thanked the genie before the third piped up. “Wait, I have one more wish?”
“I believe you are thinking about this all wrong. If you are the easiest way to pay and have the largest possible network of potential users…Is that not enough?”
The second chimed in: “The scale of the incumbent leads to lower unit costs and lets them have lower prices. As scale is the advantage of the incumbent, so sales are the weapon of the disruptor!”
“Indeed.” Said the genie.
It finally sunk in for the third entrepreneur as he exclaimed “With our wide reach we’ll be able to bring new customers to our merchants who don’t have a card or even a bank account, and with our ease of use we’ll be able to improve conversion massively!”
“Say no more.” The genie smiled “One Spiegel Special, coming right up.”
The two other entrepreneurs looked expectantly at the third. “Go on…” said the entrepreneur. “Well, you simply don’t need to be the cheapest. Of course merchants want to reduce their costs, but what they really want to do is to sell their products. If you enable that, will they not come to you in droves even if there is a fee? No one who disrupts any existing system starts as the cheapest option.” “He’s absolutely right!” said the first entrepreneur. “New payment methods are generally more expensive than incumbents.
Finally the genie finished all of their thoughts with a laugh, “It’s quite simple. If merchants sell more, they are not just able, but happy to pay a fee – more sales are always worth paying for. There is no need to waste a wish on something you do not need.”
The entrepreneur leaned in and whispered “Can I wish away my ‘co-founders’ here? This is a pretty significant opportunity, you see…”
With that, the genie vanished and the two entrepreneurs shook the cobwebs out of their heads and looked over at their grinning associate. “What’re you so happy about?” “Oh nothing,” said the third entrepreneur as he slid the golden phone into his pocket. As he walked away from his confused cohorts, there was a slight skip in his step, for he now understood just how powerful that little phone in his pocket could be.
Payment Quarterly | August 2015
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MOBILE WALLET WARS
WHY
DIGITAL WALLETS ARE THE PAYMENTS OF THE FUTURE DAVID BOZIN VP of Growth Development Bindo
D
igital wallets have found their way into the limelight with Apple Pay. While Google may have been in the game longer, Apple has a way of setting trends that become ubiquitous). Samsung tossed their hat into the ring with LoopPay, and now competition is another motivating factor to perfect the technology of digital wallets.
A PERFECT STORM OF TECHNOLOGY AND CURRENT EVENTS It’s not enough for the mobile phone companies to simply offer payment apps for customers to use on their devices. Other 14
entities have to buy in to the idea of digital wallets as well. Banks and credit card companies must agree with merchants about how transactions occur, and those merchants have to provide the hardware and technology on their end to fulfill the transaction. That’s a bunch of moving parts. Fortunately for digital wallet proponents, two big newsmakers have altered the payment world. The first is the EMV mandate. Trailing years behind Europe in making the chip and PIN cards required technology, the United States has pushed retailers to upgrade their point of sale systems to read the EMV cards. The same NFC technology necessary for reading those cards is also necessary for digital wallet payments. In other words, the liability shift associated with the EMV mandate actually makes it more likely that merchants will have the hardware necessary for digital wallet transactions. For companies arguing that the
Payment Quarterly | August 2015
upgrades required for digital wallets are too costly, this mandate will push them to make the investment anyway. The second piece of this perfect storm has been a series of security breaches at companies with big names like Home Depot and Target. When customer data is compromised, it’s costly for everybody: consumers, banks, and merchants… even those whose data remained unscathed. Merchants and consumers have become more aware of the need for security and ways to protect their personal information from hackers and frauds. Digital wallets provide added security that puts everybody at ease.
SECURITY Chip and PIN or chip and signature implementation is a step in the right direction as far as securing consumer data, but it’s not foolproof. Thieves can still steal the cards or counterfeit the credit card numbers for their evil
purposes. Point of sale systems with point-to-point encryption, tokenization, and network segmentation are essential for fighting fraudulent behavior. However, the best option in the payment industry is biometric authentication. Technology once considered imaginary or science fiction is the security of today. Fingerprint and retinal scans are a reality and have the potential to make digital wallets the most secure means of payment on the market today. Digital wallet applications already use tokenization to make payments more secure, but the added security of a fingerprint scan makes the phone useless to thieves and hackers who try to access payment information on the phone. Personal data stays under the watchful eye of the consumer and banks rather than being accessible through any merchant weaknesses. The fewer points of attack hackers have, the easier those access points are to defend.
FALLING OBSTACLES
“CURRENTLY, THERE IS THE NOVELTY ASPECT... BUT EVEN WHEN THE NOVELTY WEARS OFF, THE CUSTOMER EXPERIENCE REMAINS IMPROVED.” Right now when you walk out the
The biggest arguments against using digital wallets continue to grow weaker. While slow adopters tend to approach new technology with a “wait and see” approach, early adopters are already enjoying the benefits and convenience digital wallets have to offer. Their biggest challenge is shopping at merchants with point of sale systems that accept digital wallet payments. Thanks to the EMV mandate, merchants are finding it essential to upgrade
door, the mental checklist you verify is: phone, keys, and wallet. The time is coming (sooner rather than later) when all you’ll need is your phone (there are already ways to open your front door with your phone rather than a key).
their payment systems anyway. The cost of implementing the new technology pales in comparison to the cost of a security breach that compromises customer data. Additionally, customer demand will push merchants to convert.
Digital wallets redefine the customer experience. Currently, there is the novelty aspect of being able to checkout in a store by waving your phone in front of another piece of hardware. However, even when the novelty wears off, the customer experience remains improved.
Lest you think that banks and merchant services will be among the slow adopters and hold up the feasibility of using digital wallets everywhere, Wired reports that Apple has said they are working with credit card issuers that “represent 83% of U.S. charge volume.”
Using digital wallets eliminates
All the key components are in
any number of middle-men. Cashiers are optional and PIN numbers antiquated, making checkout lines faster and more efficient. Everything the consumer needs is located in one spot: loyalty cards, coupons, payment information, and identification details. In a world that moves increasingly faster, being able to hold so many things in one hand just makes sense.
place. It’s just a matter of time before digital wallets are the primary means of payment.
CONVENIENCE Remember when we had separate devices to tell time, play music, give directions, access the Internet, play video games, and make phone calls? All of those things happen on one device now. Gone are the days of the little black book, coupon organizers, and loyalty card collections on key rings. Everything else is on mobile devices; it only makes sense that payment information is too.
Payment Quarterly | August 2015
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MOBILE WALLET WARS
THE NEXT STEP FOR MOBILE WALLETS:
GENERAL-PURPOSE PLATFORMS I ROBERT O. CARR Chairman, CEO Heartland
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n 2012, eMarketer predicted mobile payment transaction values would hit $20 billion by this year. But seeing problems with the new payment method, a year later eMarketer forecasters scaled back and estimated that transactions wouldn’t hit $20 billion until 2016. The research firm has pulled back again and is now estimating that U.S. mobile wallet transactions will peak slightly under $9 billion this year.
Payment Quarterly | August 2015
Several factors contributed to the slump in mobile payment transaction values, from congested landscapes of competing technologies to delays and adoption issues facing numerous mobile wallet initiatives. But the lack of compelling commerce has had the biggest impact. For mobile wallets to receive greater adoption, they need to speed the checkout process and make a consumer’s life easier, and that starts with offering general-
purpose platforms, so consumers can consolidate the number of apps on their Internet-enabled devices. Mobile wallets, as we know them today, have been around since 2003, when Tokyo-based mobile operator DoCoMo launched a digital wallet. Company officials quickly learned that customers need to be incentivized if they are going to embrace mobile wallets, especially in the U.S., where the current electronic payments system works just fine. More than a decade ago, the DoCoMo owner suggested making targeted offers as part of the mobile wallet experience based on a consumer’s prior purchasing history, tying in mobile wallets with loyalty cards and programs and allowing consumers to use them as a kind of e-ticket to enter stadiums, arenas and other venues. Not much has changed since then; the same amenities for success apply today as developers learn what consumers are demanding.
THE PROBLEM
“30% OF SHOPPERS ARE ALREADY USING A MOBILE WALLET. OF THOSE, 64% PREFER TO SHOP AT A RETAILER THAT HAS A MOBILE WALLET PAYMENT OPTION.” a mobile wallet payment option. And 61 percent said they would spend more if they could use a mobile wallet to make purchases. Mobile wallets are obviously here to stay with increased adoption. But while the opportunity exists, all forms of mobile spending — online, in-person and personto-person — will total only 1 percent of the annual $16 trillion consumer payments in the U.S. by 2019, according to Forrester Research.
THE OPPORTUNITY While adoption has been slow, the potential for mobile wallets remains great, which is why countless companies, from household names to little known brands, have tried their hand at an app. According to a 2015 Interactions Retail Perceptions survey titled, “The Evolution of Payment: How Mobile Wallets are Changing Retail,” 30 percent of shoppers are already using a mobile wallet. Of those, 64 percent prefer to shop at a retailer that has
When used with Near Field Communication (NFC) terminals, in-person mobile payment is the smallest category of all mobile payments. However, this segment has the greatest growth potential with grocery stores, restaurants and fast-food chains all using NFC. According to Forrester Research, between 2014 and 2019, in-person mobile payments are expected to have increased by 56 percent, which makes it the fastest-growing category of mobile payments.
While the smart phone industry has enlisted the help of the mobile wallet in its spirited attempt at making a smartphone the only item one needs to carry, the mobile wallet has failed in many respects. They just don’t provide the stability and liquidity that physical wallets always have. Cash is accepted everywhere, even where cards aren’t, and digital apps haven’t come close to replicating its universality. Mobile wallets have a higher hurdle for adoption than a piece of printed paper. Stores must install a custom cash register and the buyer and seller have to use compatible systems. Consumers don’t feel the need for mobile wallets because their normal wallets are simply too effective.
MOVING FROM LOGJAM TO ADAPTABLE For mobile wallets to be fully endorsed, merchant apps with closed-looped cards must fade away. Consumers don’t want dozens of merchant apps on their phone any more than they want dozens of store cards in their wallet. With the introduction of PayPal, Apple Pay, Android Pay, and Samsung Pay, the multimerchant, general-purpose wallet will dominate. Developers are quickly learning that they cannot limit a consumer’s payment options because shoppers will find other ways to spend their money. The Amazon Wallet is a perfect example of a mobile wallet that fell short and
Payment Quarterly | August 2015
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MOBILE WALLET WARS
thus was short lived. The Amazon Wallet allowed users to store gift, loyalty, and membership cards, but not general-purpose credit and debit cards. A mobile wallet with no debit or credit card capabilities proved to be fatally flawed. Companies new to the mobile wallet game are learning from Amazon’s mistakes. Samsung announced in February that it had acquired LoopPay, a mobile commerce platform that uses its magnetic secure transmission-patented technology to turn existing mag stripe readers into mobile contactless receivers, enabling mobile payments to be accepted at traditional point-of-sale terminals, not just those equipped with NFC. That capability makes LoopPay digital wallet users mobile payments customers at more than 90 percent of merchant establishments today. And Google is making upgrades to make its wallet more attractive to consumers. Google recently announced the rollout of a new payments platform that manages all of its users’ financial data in one place. Google Payments is expected to display a log of all transactions made with a user’s Google account, while the main page will show items that need attention, such as expired cards. With the new Google Payments, users are able to tweak payment methods, manage their bills and more.
DIGITAL DRIVER’S LICENSES ARE A MUST In addition to general-purpose wallets, digital driver’s licenses are the next step in making mobile wallets dynamic. Travelers can download a digital boarding pass on their phone, but identification is required to fly. So, these travelers find themselves holding their phone to the scanner while pulling out their physical wallet to present a driver’s license. This process would be seamless with a digital driver’s license. Some drivers may not have to wait much longer. Delaware and California are among several states considering digital driver’s licenses, and prototypes
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Payment Quarterly | August 2015
will go into pilot tests in some places this year. If those tests go well, the first sprinkling of virtual licenses could be offered to the public as early as next year. The digital license would be a mobile app with security protection potentially featuring real-time data downloaded directly from that state’s department of motor vehicles. Mobile wallets have come a long way, but there’s still so much room for improvement to ensure the concept offers staying power. While developers can miss the mark and not offer what consumers need or be completely innovative, as in the case of the Swedishbased start-up with the bright idea to allow users to pay by having the vein patterns in their hands scanned, they must each remember that payments – mobile or otherwise – must be fit, be sufficiently convenient and worth a consumer’s smartphone battery life.
MOBILE WALLET FINANCIAL INSTITUTIONS WARS
ARE MOBILE PAYMENTS POISED TO REVOLUTIONIZE GLOBAL BUSINESS?
F MARCUS TREACHER Head of Innovation, Global Payments and Cash Management HSBC
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or a number of years, when it comes to mobile banking innovation, the focus of the banking industry has been on retail customers. Many consumers are now familiar with using their mobile phones to pay for things, to send money to a friend or split a restaurant bill with a click or two. The process is smooth, seamless and above all else, intuitive. Mobile payments mean there’s no need to input bank details for every transaction. In some cases, the counterparty’s mobile number is all that is needed and with
Payment Quarterly | August 2015
The world is on the brink of a new era in which mobile payments will revolutionize the way businesses operate mobile wallets, payments can be made with a single click or tap. In many ways, corporate banking is lagging behind when it comes to mobile innovation. Business-tobusiness (B2B) mobile payments have yet to become commonplace. The technology exists, but it has yet to do widely adopted by the business community on the scale seen in consumer banking. Some companies continue to pay and receive funds using decades-old methods such as paper invoices, banker’s drafts and paper cheques.
“GovPayNet has been such a wonderful service for us. Our collections are up, and people are so happy to be able to make credit card payments online and by phone. It provides a much needed p service and works for everyone involved!” Carol Price Dillingham, Asst. District Attorney Cleveland, Garvin & McClain Counties Oklahoma
If you represent a government agency or a technology company, telecom company, or other government contractor looking for card processing expertise and leading-edge solutions, give us a call. 1-(888) 561-7888 • info@GovPayNet.com
FINANCIAL INSTITUTIONS
MORE THAN JUST CONVENIENCE This will change fast. We are on the brink of a new era of B2B mobile payments which will deliver more than just convenience. Mobile payments will introduce entirely new ways of doing business and will generate vast quantities of valuable information about a company’s operations that were previously unobtainable. The revolution will be so profound it will redefine the role of finance departments, freeing them from cash and cheque handling, transforming them into the creators and managers of valuable transaction data. The innovations adopted by CFOs will allow firms to re-engineer their business models. The first application of mobile payments is to unlock purchasing and sales to the millions of executives who prefer to transact on their phones or tablets. So a construction site foreman, for example, ordering extra tons of sand and gravel will use a mobile to select the supplier, place the order and commit to pay - all without leaving the site.
REMOVING ADDITIONAL WORK But mobile B2B payments could have a particularly big impact on doing business internationally. For example, many firms find trading with emerging market buyers/suppliers risky or hard 22
work. Processing payments in major overseas markets can be pretty challenging. Posting a cheque is inefficient; it may get lost; the exchange rate could change before it arrives and gets processed; and the recipient may not have a bank branch close by. Mobile-to-mobile payment between the two parties removes all this additional work. With mobile payments, sales representatives can sell to businesses and consumers on the road without handling cash, at home and abroad. They can close a deal with a company in Jakarta, invoice electronically and take the first instalment payment moments after shaking hands on the deal. There is a long list of other advantages. Fraud is likely to be reduced when cash and paper forms are taken out of the payment loop. Vulnerability to crime is curtailed; by using mobile payments, sales representatives and their customers can avoid carrying cash and eliminate the personal risk this can bring.
IMPROVING CASH FLOW AND LIQUIDITY Moreover, mobile payments can improve the financial health of a business. Using traditional payment methods, weeks can go by without transactions being completed. Mobile payments mean there is instant reconciliation. Being paid faster improves a company’s liquidity
Payment Quarterly | August 2015
and cash-flow performance by extending their ability to pay their own creditors faster. Improving cash-flow performance enables opportunities to increase credit ratings, improve credit terms and elevate a company’s reputation, all of which enable growth. Digitising payments also enhances visibility over the workings of a business, because much more comprehensive and accurate information about payments can be captured and retained. Finance directors can, at a glance, better gauge the financial position of their subsidiaries, trading partners and contractors, enabling them to make more informed buying decisions and extending credit with greater counterparty awareness.
TRANSFORMING MARKETING Mobile payments will transform marketing. Clients can use sophisticated mobile apps which cross-sell, offer account information, and generate valuable data for marketers to use to identify warm leads for follow-up, and learn more about the preferences and nature of their customer base. In Asia, Latin America and Africa entire economies are leaping from cash and coins to mobile payments. The State of the Industry 2014 report by GSMA, the mobile networks association, reveals there are 16 African nations where mobile bank accounts outnumber traditional
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bank accounts. Mobile banking is routine in Brazil, Indonesia and Vietnam, three attractive export markets.
THE INTERNET OF THINGS Business adoption of mobile payments will pave the way for possibly an even bigger disruptive change - what’s called the internet of things. This is the increasing trend of connecting machines to the internet without any person needing to control them. It exists today with utility company smart meters and basic car park metres and, as all parts of global supply chains become linked to the internet, the impact on company logistics departments will be huge. Machines in warehouses will pay for deliveries and event goods
aboard ships will communicate any defects en route. Vending machines at music festivals will process payments and report stock levels using mobile technologies. The shift to mobile in the corporate world will complete the circle, establishing end-to-end digital ecosystems that combine manufacturing, international trade, distribution and finance with the activities and demands of individual consumers. This will unlock enormous potential for businesses, but will also be disruptive, creating a host of new hurdles for the corporate world to overcome and altering the nature of many firms, changing the roles of their workforce, eliminating some disciplines and creating entirely new ones.
THERE IS MORE TO PAYMENTS THAN CREDIT CARDS
Going mobile will also create an enormous increase in the amount of data and information that must be processed and managed, placing an additional load on critical payment infrastructures and control mechanisms. In addition, it will bring data security challenges, as firms demand increasingly sophisticated data protection services to guard these valuable insights from competitors. In the mobile world, if you are a creative player and you can adapt quickly you will thrive, gaining at the expense of rivals who are slower to embrace mobile. Mobile for business is both an enabler and a powerful force for change.
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DISRUPTIVETECHNOLOGIES ADD EXCITEMENT TO PAYMENTS INDUSTRY
W CAROL JUEL Executive VP and Chief Information Officer Synchrony Financial
hen I spoke with Payment Week recently, we talked about how payments are exciting again. This issue is proof of the increased visibility – welldeserved in my opinion – now being given to the payments sector. Payments are crucially important to U.S. retail commerce, which is valued at more than $5 trillion annually . As the CIO of Synchrony Financial, a company that’s been in the business of consumer finance for over 80 years, it is exciting to see how emerging technology and new uses of existing technology are driving innovation in the payments industry.
This past year has truly been a transformative year for payments. While there are multiple important and related technology initiatives happening simultaneously – including EMV or ‘chip’ cards, information security and others – the biggest change and opportunity has come from the rise of mobile payments. This has been driven primarily by the rapid adoption of smartphones. Almost 70% of U.S. consumers surveyed in 2015 own a smartphone, up from just 19% in 2009. As mobile devices are increasingly being integrated into every aspect of consumers’ lives, there are higher expectations for merchants and new opportunities to provide a positive customer experience during each stage of the transaction. Mobile payments deliver the convenience that consumers demand by leveraging the traditional payments infrastructure and also harnessing innovative technologies to provide a simplified customer experience, additional security, and Near Field Communication (NFC) functionality.
Payment Quarterly | August 2015
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FINANCIAL INSTITUTIONS
As the largest provider of private label credit cards in the U.S., Synchrony Financial is keenly focused on the rise in mobile shopping and payments. Our recently released 2015 Digital Study, now in its third year, surveyed nearly 7,000 shoppers nationwide and shows that the use of mobile technology by shoppers continues to climb. Forty-five percent (45%) of all respondents said they used a mobile device to perform a shopping-related task (researching, sharing, purchasing and reviewing), up four percent from 2014, and nine percent from 2013. And mobile purchases are steadily increasing as well, with 18% of respondents reporting that they have made a purchase with a mobile device, up from 16% in 2014, and 12% in 2013.
THE TIPPING POINT Even though digital wallets were introduced more than four years ago, the launch of Apple Pay last September was a major driver of consumer interest and retailer adoption of mobile payments. The landscape of mobile payment providers is clearly still evolving, with rapid consolidation and convergence in the mobile wallet space, including Samsung’s acquisition of LoopPay, Google’s acquisition of Softcard, and PayPal’s acquisition of Paydiant. Nonetheless, we are seeing consumer acceptance and merchant adoption accelerating, and Forrester predicts that U.S. mobile payments will grow to $142
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billion by 2019, up from $52 billion in 2014 .
ALMOST 70%
Ultimately mobile payment adoption will come down to consumer choice. At Synchrony Financial our strategy has always been to make our cards valuable to our retail partners and their customers so that they will want to use them in whichever wallet they choose. We are committed to working with all digital wallets, including Apple Pay, Samsung Pay, Android Pay, CurrentC (MCX), and others, to give consumers more options for secure and convenient mobile payments.
OF U.S. CONSUMERS SURVEYED IN 2015 OWN A SMARTPHONE, UP FROM JUST 19% IN 2009.
As players further differentiate their mobile payment offerings, consumers will become more aware of these new technologies and choose which mobile wallet(s) they want to embrace. We are already witnessing increased acceptance and adoption, as evidenced by key payments technology terminology previously discussed only in security and technology circles – tokenization, NFC, and Point-to-Point Encryption (P2PE) – now becoming part of the ongoing dialogue. The broader understanding of these technologies will help to accelerate the move to mobile payments.
cards and patented Dual Cards are processed differently than a traditional Visa, MasterCard, American Express or Discover transaction. Fewer participants in the closed loop authorization chain drive down processing costs and improve data security and integrity. This allows Synchrony Financial to offer our merchant partners a strong value proposition, including lower transaction costs, richer data and deep point-of-sale (POS) integration. To preserve this value proposition and seamlessly integrate mobile payment technologies and tokenization with the transaction flow is no easy feat.
SOLVING FOR PRIVATE LABEL – INNOVATION & PARTNERSHIP Transactions on Synchrony Financial’s private label credit
Payment Quarterly | August 2015
Over the past year, through our ongoing innovation and strategic partnerships, we have developed a mobile platform that we can
preserves the value proposition those cards deliver. We have been working closely with MasterCard to enable our cards to work within digital wallets, leveraging the MasterCard Digital Enablement Service (MDES) to deliver tokenization services for a simple and secure mobile payment experience for consumers. MDES supports contactless (NFC) payments with a mobile device at a physical point of sale, as well as from within a mobile app. Transactions are secured using industry-standard EMV cryptography and secure payments technology. rapidly integrate across retailers and wallets. This platform maintains the benefits our private label credit cards and patented Dual Cards offer – including loyalty and rewards programs, point of sale discounts, and promotional financing – in thirdparty digital wallets. Through this approach, Synchrony Financial is helping shape the future of how private label credit cards work in digital wallets. As announced at the Apple Worldwide Developers Conference in June, Synchrony Financial retail partner, JCPenney, will be among the first retailers to offer its private label credit cardholders the ability to checkout with Apple Pay later this year. This will be one of the first instances of private label credit cards leveraging contactless, NFC technology for an easy, secure mobile payment that
Mobile payments provide merchants the opportunity to transform the customer shopping experience and our goal is to develop mobile solutions that anticipate and solve for customer and partner needs and keep pace with rapidly evolving technologies. Our Innovation Station in Stamford, CT is comprised of a cross-functional team focused on agile development of new digital and mobile products. The agile development model calls for the fast release of a product and iterating on that based on feedback to continuously and quickly enhance and improve the product. The Innovation Station team also hosts oneday prototyping sessions with partners and customers, which has led to the development of a number of proprietary mobile solutions including
enhancements to our popular mApply mobile credit application product and the prototype for our digital card product, a proprietary digital version of one of our cards that enables in-store account lookup and mobile payments functionality. We will continue to build, partner, and invest in innovative mobile solutions for the entire credit lifecycle – from acquisition to servicing and loyalty to payments. Earlier this year we announced a strategic partnership with mobile developer GPShopper to offer solutions that empower retailers to drive customer engagement and loyalty by bridging the online and in-store shopping experience with the use of mobile technologies. Working with GPShopper we have developed native apps, installed directly onto a mobile device, which take advantage of device features like GPS and TouchID to offer a seamless user experience and enhanced functionality. The apps also give retailers, merchants and service providers the ability to send push notifications for location-based promotions and special offers to drive awareness and repeat business. Technology innovations allow us to expand how we are thinking about the evolving customer retail experience – especially for mobile shoppers. As more merchants and customers embrace mobile payments it continues to be an exciting time in the payments industry.
Payment Quarterly | August 2015
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B2B & MERCHANT TOOLS
PLATFORMS ARE THE NEW
OMNICHANNEL O RICH ABERMAN Co-Founder, CPO WePay
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mnichannel is the buzzword of the day for merchants and the payment service providers that serve them. Merchants are increasingly conducting mobile, social, and web commerce along side in-person commerce, and they want their payments systems to follow suit. But as payment companies scramble to support every channel, they may be missing the bigger “omni” of omnichannel: a rising tide of online platforms that bring all elements of the transaction into a single, channel-agnostic experience.
Payment Quarterly | August 2015
Uber is probably the best-known example of this new omnichannel experience. Customers create an account, including their payment information, online through a mobile app or desktop interface. They can order a ride the same way. The Uber ride takes place in the physical world, but there’s no need to swipe cards or exchange cash. All that transaction complexity happens in the background. Uber owns and manages the necessary relationships with banks, ISOs, VARs, etc. so a payment from the passenger to the driver flows
through the platform without worry or hassle. There’s no consideration of channels. It’s just a relationship between driver and passenger, and driver and his or her business, with Uber facilitating both. That’s the single-channel branded experience that both customers and merchants today want. It’s part of an even bigger trend we’re witnessing – the growth of the platform economy - and it’s redefining the omnichannel experience.
That’s why merchants are increasingly looking to the software platforms they already use to also provide the payment services (and other financial services) they need.
THE PLATFORM AS CHANNEL Platforms not only reduce payments complexity for merchants by capturing all of them in a single system regardless of channel, they can actually extend the value of a payments system by building new features on top of transaction-level data.
REDEFINING OMNICHANNEL At its core, omnichannel is about providing continuity of experience across online and offline channels. The line between offline and online is not as deep and as thick as it once was. Brick and mortar companies of all sizes now have online channels, and successful online companies have extended their tentacles into the physical world. The two worlds have converged. Yet the way many payment services are delivered today doesn’t easily support that reality. The core issue is that payment companies interpret omnichannel to mean they need to add an mPOS solution, Apple Pay support, etc. to the list of features they sell to merchants. They treat each of these as something discrete and separate from the others. For the merchant, it’s a decoupled, disjointed experience when compared with the elegance of an experience such as Uber provides.
An inventory management platform, for example, can use data from payment transactions to give an accurate, real time view of a merchant’s stock, and save them time by ordering new product automatically as supplies get low. Marketing software platforms can automatically trigger certain actions when a transaction occurs, such adding a new customer to future email loyalty campaigns. A sales platform can generate reports including up-to-theminute transactions, providing merchants a far more granular view of their business than ever before. These are all common tasks for merchants, and they all touch on payments in some way. Integrating them closely with their payments service makes sense because doing so matches how merchants actually work, and lets them do their work without having
to manage relationships with multiple providers on multiple systems.
PLATFORM EXPLOSION It doesn’t make sense for platforms to miss out on the payment, either. The number of platforms that facilitate commerce for merchants in one sphere or another is exploding. There are verticalspecific platforms such MindBody for wellness professionals, VRBO for home sharing and Etsy for crafters. Then there are horizontal platforms such as Freshbooks, which provides electronic bookkeeping and invoicing for a wide variety of small, servicebased businesses. For such platforms, the ability to provide payments as part of their service is integral to what they’re doing, and they benefit by doing so. They can make money on transactions, but that might be the least important benefit. Integrating payments into the platform reduces friction and churn. It allows the platform provider collect additional data by being part of the processing value chain, data they can use to improve their offering and increase wallet share. In short, it lets them own the whole customer relationship.
THE TECHNOLOGY SHIFT The only hindrance to platforms doing payments themselves is that building that functionality and navigating the regulatory landscape has traditionally been tough. Today, it’s still not easy,
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B2B & MERCHANT TOOLS
but technology has come far enough that a perfectly integrated payments system is an achievable goal. Platform companies like Uber are building their own payments capabilities. Companies that are not as well capitalized, or simply don’t want to get into all the regulatory complexity around managing payments, can use third party APIs (application programmer interfaces) like the one WePay provides for seamless payment processing while offloading risk and complexity onto someone else.
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Either way, a platform company with payments capabilities has a much stronger value proposition than a payments company that merely offers a number of ways to accept money. The platform company can say, “We’re the underlying operating system for your business. We help you find and manage customers, manage your inventory, take payments and manage shipping, and we work for you wherever you work.” The payment company can say, “We have a mobile point of sale system.” You can see which model is likely to win out.
Payment Quarterly | August 2015
The future of omnichannel is one channel: the platform. Merchants will accept payments through the platform they use to run their business, regardless the channel where the transaction is taking place. They will see the platform, not the bank, as their payments providers. It’s a fundamentally different value proposition, and a shift in thinking that has the potential to disrupt the whole merchant service ecosystem as the platform economy grows.
NEW PRODUCT GIVES PROCESSORS A FUNDING FOOTHOLD AGAIN
T
he role of the credit card processor has diminished over the last couple of years when it comes to merchant funding. ACH/Lockbox models and merchants seeking loans over MCAs have become the trend. The decline in profit margin on residuals due to price compression made it less profitable to switch the merchant’s processor in favor of simplified ACH solutions. This is where it’s important for processors to offer the right product and have the right funding partner.
ENTER TRAKLOAN™ At TRANSACT15, CAN Capital unveiled TrakLoan — a new class of financial products designed for merchants who want a flexible, cash-flow friendly, business loan. TrakLoan’s key feature: It’s paid back using a fixed percentage of the merchant’s daily card sales. So, if they have a slow month, they pay back a little less. Great month? They pay back more. Benefits to processors offering Trakloan are considerable. For starters, there’s an increase in customer retention. The typical lifecycle of around 36 months means merchants are likely to stick with their current payment processor that much longer.
In addition to this “stickiness,” there is the higher processing volume that results from betterfunded merchants — a bump of 10% is not unusual following a capital influx. And of course there’s the direct income. When a merchant gets working capital through a processor who is partnered with a finance company, the processor receives an upfront commission. Moreover, when the merchant returns for additional funds (as a large segment of eligible customers do), the processor gets paid again. Industry-watchers see TrakLoan as a kind of loan/MCA hybrid. Early reports on the concept are extremely positive. “Vision Payment Solutions has been working with CAN Capital as a strategic partner for over 8 years and we are very excited to offer TrakLoan to our merchants and sales partners in the United States,” said Eric Hannelius, President and CEO of Vision Payment Solutions, which is currently beta testing the TrakLoan product.
PICKING THE RIGHT PARTNER IS KEY The fundamental reason for processors to help their customers access working capital comes down to one thing: Adding value. So it makes sense to consider a funding partner carefully before signing on.
When looking for a funding partner, processors should consider three things: experience, product set and marketing capabilities. CAN Capital has more than seventeen years’ experience — plus relationships with top processors like Wells Fargo and Worldpay. They offer best in class marketing support including a full service marketing program which includes: list scoring and segmentation, campaign management, creative design, and execution. In the past, the barriers to entry for processors who wanted to dabble in funding were significant. Not these days. Integration between a payment processor’s systems and a finance company’s makes it possible for applications to be completed from within the processor’s system — using data they already have on hand. As an example, CAN Capital’s market leading CAN Connect™ system allows processors to generate preliminary loan figures (an “Instant Quote”) to give merchants an idea of what they may qualify for if they apply. The application process has also gotten streamlined over time. And the minimum requirements for approval on a product like TrakLoan (2 months in business, 11 tickets per month, $2,500 average monthly card volume) mean a large percentage of a processor’s clients will be eligible.
Payment Quarterly | August 2015
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B2B & MERCHANT TOOLS
WHY LENDING AND ANALYTICS
GO HAND IN HAND S
STEPHEN SHEINBAUM Founder Merchant Cash and Capital
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ince “Big Data” first hit the public consciousness, the world has been expecting big things of it: cutting crime, curing cancer, or stopping the next economic disaster before it starts. Traditional lenders, alternative finance companie, and financial technology firms have a different goal: They want big data to paint a better picture of lending risk, particularly for lending to small businesses.
like credit scores, to analyze a potential borrower’s ability to repay and more accurately price risk. But structured data can’t, by itself, completely measure a thornier issue--willingness to repay. That is why so many of us in the fintech world are looking to the next step, which is to combine the analysis of structured data with that of unstructured data in our underwriting. Can a negative social media review foreshadow default? Can erratic operating hours? What about the words that a potential borrower chooses to describe his financial situation in an application or interview? Two professors from Columbia University are conducting research right now with a colleague from the University of Delaware to see whether there are just such linguistic red flags. The working title of their research is “When Words Sweat.”
There are 28 million small businesses in America right now, a large market for financial services but a market made less attractive by high default rates. Of course, we could cut those default rates to zero with highly restrictive underwriting, but that wouldn’t help small businesses-or financial service providers.
Analytics also have the potential to help financial services companies manage risk more effectively by helping them spot potential problems as they develop. If a consumer’s credit card falls into the wrong hand, he will likely get a text message alerting him to unusual activity on the card.
The solution is to use analytics to reduce default rates among small businesses, and the financial services sector has made enormous strides in using structured data,
But there’s much more to be done with these kind of real-time alerts in relation to businesses: Think about what it would mean to a financial services firm to have a
Payment Quarterly | August 2015
prompt alert to a tax lien filed against a borrower in its portfolio. It could immediately begin a dialogue with the business about the situation that could lead to a solution that would be much better for the business than default. Through mass-customization, analytics also have the potential to enhance user confidence in an online experience, make it more personal, and expand its acceptance. Google, Facebook, and Amazon are gathering data that will help them do better at showing users the search results that they are most interested in.
but we believe that it significantly upgrades the user experience in ways that will compel borrowers to use our platform over that of our competitors. Financial services companies in America have an abundance of data at their fingertips, which, if used wisely, can enhance the trust that the public places in us.
“THINK ABOUT WHAT IT WOULD MEAN TO A FINANCIAL SERVICES FIRM TO HAVE A PROMPT ALERT TO A TAX LIEN FILED AGAINST A BORROWER IN ITS PORTFOLIO.”
Mass-customization is also showing up in financial services. On Bizfi, the connected funding marketplace that I debuted earlier this year, we have used data and technology to better tailor a borrower’s screen experience to him or her. This work saves keystrokes (and time) in the application process,
Finally, analytics can help financial services companies reduce their operating costs, through both process automation and process optimization. Yes, we need to let machines do what they do best, as often as possible. But we also need to do a better job of harnessing technology to help humans do the work in finance that they need to do—a process some call augmentation. The leaders in finance--both traditional lenders and alternative finance newcomers--will be those companies that most accurately map their processes and pinpoint the opportunities for automation and optimization.
Payment Quarterly | August 2015
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PAYMENTS SECURITY
HELPING MERCHANTS
UNDERSTAND EDWARD BLACK III
Director, PCI Business Unit Comodo
I
have to be honest here and say- merchants hate PCI. I mean…they really do hate it. Now, I realize that is not really an earth-shattering revelation to ISOs or processors, but do you really understand why they hate it?
REASON #1: THEY THINK IT’S A SCAM Considering the ways that “NonPCI” fees have been used over and over as leverage, it is easy to see why. Let’s face it; Merchant Services is a highly competitive market place. Merchants are constantly being approached by reps asking for statements, looking to shave off a few BPs here, a statement fee there. PCI and Non-PCI fees have been used frequently by many reps 34
PCI
to win business rather than an education opportunity. Having sold merchant services myself, I can tell you many business owners thought of PCI as “just something my processor uses to whack me for more fees.”
will get walked through the SAQ, perhaps not. Perhaps they will get a scan set up, if needed. Perhaps they will understand what the scan report tells them and remedy vulnerabilities, but more than likely…
REASON #2:
REASON #3:
THEY DON’T ACTUALLY KNOW WHAT PCI IS SUPPOSED TO DO
THEY DON’T KNOW WHAT TO DO SO THEY DO NOTHING
Most merchants are not IT professionals. Neither are most reps, ISOs or acquirers. It is a circle of confusion. And, who can blame any of them? Have you ever seen one of these SAQs? Even if a business is SAQ Type B-IP (think of most small restaurants), which basically means there are POS systems and swipe terminals connected to an IP address, there are over 80 questions to answer.
They allow themselves to be vulnerable to hackers, fraud, crippling chargebacks and potentially catastrophic losses. I call it the “Asteroid Theory.”
Most of them may as well be written in ancient Greek to your typical business owner. Frustrated and confused, they’ll call their merchant rep or ISO for help. From there, they will likely be forwarded to a customer service number. Perhaps they
Payment Quarterly | August 2015
There are billions of asteroids ripping through the universe, colliding into each other. Some have hit planets. At any given time, the Earth could be hit by an asteroid and cause catastrophic damage. Well, if that’s the case, why aren’t we all hiding under our covers or building spaceships to get out of Dodge? We believe the chances of this happening are so minute that “it won’t happen to us.” So we go about our day as any other.
In my experience in talking with many small business owners, many of them simply take this “Asteroid Theory” to their own business. PCI is, for many, beyond comprehension, frustrating and mysterious. Frankly, it’s intimidating. Moreover, it is difficult for many merchants to imagine that they could actually lose their business over something they can barely understand themselves. Don’t believe me? According to Verizon’s latest study, only 29% of merchants remain compliant within one year of attesting. That’s just the ones that, in fact, BECOME compliant. Many more merchants find themselves months, even years, behind updates to PCI. It’s too confusing…”it won’t happen to us”…and besides, see Reason #1. I am by no means a psychologist, nor do I play one on TV or here in this article. These are observations I’ve made in my past experiences dealing with small business owners. Even the recent exposures of breaches like Target, Home Depot, now even the IRS, do little to sway many merchants. They will brush it off with the excuse…”I’m too small, hackers don’t care about me.” They don’t realize that there were over 11,000 reported data breaches in 2013, more than 90% of which were small businesses.
Consider the time it takes to detect a breach, on average 197 days in retail according to the Ponemon Institute. Imagine the damage a fraudster can do having over 6 months of unfettered access to a merchant’s data!
SO HOW DO WE HELP MERCHANTS GET OVER THEIR FEAR AND HATRED OF PCI? In my opinion, it’s all about education. I believe this needs to come not only from the processor, but also the ISO and the reps. It is important to be proactive; use the Non-PCI fees as an opportunity to educate the merchant on PCI importance. Don’t let another processor use it to steal away your customer! Identify your Non-PCI merchants and help them through the SAQ process. It is best practice to partner with an ASV that can provide live support to a merchant during the SAQ. If they don’t understand it, they won’t do it, so helping them translate the SAQ is the key.
can cost several thousand dollars; it is critical the merchant buys into the cost / benefit ratio. In most cases, just helping them get scans and keeping reports current will greatly improve their compliance. It is also good practice to introduce them to breach insurance. Most underwriters will require their merchants to be PCI compliant before offering coverage. Considering the extravagant cost of a payment card data breach, merchants can have peace of mind should an event occur. PCI is not going away, in fact, its application is more critical than ever. Through proactive education, ISOs, processors and reps can help shatter their merchants’ misconceptions. Involved, educated merchants will feel good about the process, take the steps to protect their businesses, and appreciate their providers. This, in turn, will lead to less attrition, more revenue opportunities and a lower risk profile.
Help them see that PCI is not just a scam for fees. Moreover, a merchant will NOT spend any more on remediating vulnerabilities if they don’t understand what the products do and why they’re important. For example, merchants who are SAQ A-EP, C and D now require penetration testing. Pen testing Payment Quarterly | August 2015
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PAYMENTS SECURITY
OVERCOMING THE THREAT OF
MOBILE WALLET FRAUD GEORGE AVETISOV CEO HYPR Corp.
A
mazon.com reported that nearly 60 percent of customers shopped using a mobile device during the 2014 holiday shopping season. In addition, total holiday sales in the US from the Amazon mobile app doubled. These figures make it clear that the age of mobile commerce is upon us. As consumers have become accustomed to the option of shopping by phone, they have naturally wondered how else they might use their phones during the purchasing journey. Cue the creation and adoption of mobile wallets. The most notable recent example is the launch of Apple Pay last year, which resulted in a kind of revival for this mobile payment method.
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Just as consumers and merchants see great value in the mobile channel, so do cyber criminals. Fraudsters are constantly updating their attack methods and exploiting every vulnerability they can find. The newer and more untested the technology, the greater its potential vulnerability. Therein lies the potential problem with mobile wallets.
Hardware tokens were an early solution, gaining widespread adoption when they first came to market 20 years ago. They implement time-based security codes and Public Key Infrastructure (PKI). But when it comes to the consumer market, which comprises the majority of online users, hardware tokens are an awkward fit.
NEW CHALLENGES IN AUTHENTICATION
AUTHENTICATION SHORTFALLS
It’s never been a cakewalk to verify that people are who they say they are online. This dilemma brings to mind the famous New Yorker cartoon with the caption, “On the Internet, no one knows you’re a dog.” And authentication is only getting harder in the age of IoT, BYOD (Bring Your Own Device), and cloud services, which introduce challenges unaddressed by usernames, passwords or tokens. As the demand for remote login and flexibility continues to rise, organizations are struggling to find and deploy authentication methods that are effective, easy to use, impervious to theft, and scalable. Until recently, those methods have been difficult to find.
For decades now, the default method of authenticating users has been usernames and passwords. Only recently have additional measures, such as enforcing increased password complexity or adding a second layer of protection, known as two-factor authentication (2FA), increased in usage as security breaches become more prevalent and sophisticated. These newer methods of authentication have been slow to gain traction with everyday consumers because they are fragmented in nature, with no widely accepted standard.
Payment Quarterly | August 2015
Stronger security measures are only as good as their popularity among people who use them.
Increased password complexity is a fine idea, but the reality is that many users choose easy-toremember passwords and reuse them for all of their applications. Efforts to increase password complexity have failed because most people use the same common characters to fulfill these complex password requirements. With the rise of mobile computing, inputting complex passwords is onerous and often results in users choosing easy-to-type passwords that hackers find are simple to guess.
is showing significant promise as it becomes more commonplace: on-device biometrics. The latest Apple and Samsung mobile phones - as well as modern computers - have integrated biometric sensors, often in the form of a fingerprint sensor. These devices also include a Trusted Platform Module (TPM) or Trusted Execution Environment (TEE) that handle the verification of biometric information separately from the primary device’s core operating systems, which are susceptible to malware.
It’s clear that stronger authentication is necessary, so 2FA software-based solutions such as SMS codes and timebased software token applications have gained some traction, but they have shown to be vulnerable to malware attacks that plague many user devices. 2FA schemes fail to address the security problem they are trying to overcome by performing ondevice authentication, which is still susceptible to the same attack vectors as passwords. 2FA hardware tokens are a usability nightmare; software-based 2FA solutions are inconvenient and vulnerable to malware. In short, 2FA solutions provide insufficient security for organizations that require an end-to-end security solution.
This is an approach that has just recently become possible, as previous mobile devices that are convenient to use were unable to evaluate biometric information easily. Equipped with biometric sensors, these new devices have the ability to change the way that users authenticate to services they use every day such as email, social media, and banking. More importantly, with such devices now widely available, the platforms providing these services have a major incentive to make biometric-based authentication available as a benefit to their users.
THE BENEFITS OF BIOMETRIC AUTHENTICATION
Unlike a person’s first name or the type of device they use, a biometric signature is unique to each person, offering a conclusive, logical ways to prove one’s identity. However, users must exercise caution, as using biometrics is not a panacea for the security problem.
Fortunately, not all strong authentication approaches are the same. One recent trend in security
Organizations should implement a security program that uses
biometrics as one tool for proving user identity and ensures that sensitive data is only accessible by the individual to whom it biologically belongs. This means TPMs and TEEs are where a person’s unique biometric signature should be stored, and other security tools should include robust encryption and tokenization schemes.
AUTHENTICATION FOR TODAY’S MOBILE MARKET The mobile wallet is a natural progression based on mobile shopping, giving the consumer choices in ease and convenience. While merchants rush to capitalize on this trend, so do cyber criminals. This reality has led merchants to search for security methods that are scalable and easy to use. Hard tokens, once the darling of authentication, are difficult to scale and inconvenient for all involved. They also were not designed to handle the multitude of scenarios created by cloud services, mobile devices, and BYOD. SMS codes and time-based software token applications are susceptible to some of the security problems they are trying to defend against, making them an inadequate option. However, on-device biometrics is making biological authentication a convenient reality that could— as part of a fuller security framework—provide a viable solution for the mobile wallet market.
Payment Quarterly | August 2015
37
BIOMETRICS
BALANCING
SECURITY AND USABILITY DURING MOBILE TRANSACTIONS
I MICHAEL HAGEN Corporate ID Strategist & Managing Director IDchecker a Mitek company
n 2014, the number of connected mobile devices surpassed the number of people on Earth for the first time. With explosive growth from zero to 7.2 billion mobile devices in just three decades, it can be extremely difficult for mobile security to keep pace with the new innovations and use cases that are constantly emerging for these devices. Consumers love the convenience of mobile shopping, payments and account opening, but concerns about fraud are increasing – both from consumers and the organizations participating in the mobile transactions. As the mobile channel continues to grow, the risk of fraud grows with it. According to a report from LexisNexis Risk Solutions Inc.,
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Payment Quarterly | August 2015
m-commerce merchants saw a 70 percent spike in the revenue lost to fraud in 2014. Additionally, the report stated that more than one-fifth (21 percent) of all fraudulent transactions are attributed to the mobile channel. As widespread data breaches in recent years have left millions of consumers’ personally identifiable information (PII) exposed, financial institutions and other businesses are looking for strong identity-proofing approaches to verify that their mobile customers are who they say they are. However, many of these approaches are too onerous for either the companies or their mobile customers. In many cases, the processes take days to verify a consumer and are not
scalable. Too often, they require the consumer to leave the mobile channel and go completely offline by requiring the individual to mail copies of their ID documents through the postal service. Most consumers – especially those who use the mobile channel as their first choice for conducting transactions – are simply going to abandon such a process. That means lost sales, fewer new customer accounts or other lost opportunities for the business. Alternatively, in an attempt to make the process more convenient for users, some companies have chosen to handle consumers’ PII in an insecure manner by asking the customer to send a scanned copy of an ID document through insecure email channels. Not only is this approach not secure, it’s also not particularly convenient for users as they are still required to leave the mobile transaction in order to scan the document and log into their email account. So how can mobile payments providers, mobile commerce companies, financial institutions, and other organizations conducting consumer-facing transactions through the mobile channel strike the right balance of security and a user-friendly service? I like to use the analogy that identity verification is like a puzzle: the more pieces there are in the puzzle, the stronger it becomes. The same is true
of mobile ID authentication - no one solution or service can effectively solve the entire problem. Organizations should employ a layered approach, using a combination of tools and techniques to verify users’ identities upon enrollment and continue to securely authenticate customers each time they use the mobile service. Strong security requires a multifactor authentication approach that includes at least two of following three authentication methods:
SOMETHING THE CONSUMER KNOWS: This is the traditional way of authenticating consumer identity. Its better than nothing, but it cannot be the only piece in the puzzle if you want to be secure. This approach typically takes the form of knowledge-based questions that verify a consumer’s claimed identity by asking “secret” life questions based on external data, such as their mother’s maiden name, where they went to school, or which institution serviced their mortgage. Unfortunately, knowledge-based authentication (KBA) processes are not very secure because the information can often be gathered from a person’s social media profiles or compromised in a previous privacy breach. According to Gartner Research, KBA processes also have a high failure rate (10 percent to 15 percent) because users often cannot remember the answers, or because the public records are lacking or incorrect. The failure rate can climb as
high as 30 percent for consumer populations who do not have a plentitude of public information on them, such as young adults or new immigrants. In addition, tiny mobile keyboards are notoriously difficult to type on so the longer and more complex (i.e. the more secure) a KBA response is, the more likely consumers are to make mistakes and risk being locked out.
SOMETHING THE CONSUMER HAS: This is significantly more secure and can include scanning the consumer’s government-issued ID documents such as a driver’s license or passport with the mobile device camera. Many of these documents are virtually impossible to replicate and advance computer vision is capable of picking up hidden encrypted codes that aren’t visible to the human eye. This approach can also include linking/ registering the mobile device being used, to the consumer attempting the transaction. For example, institutions can look at hardware identifiers built into the mobile device such as the unique device identifier (UDID) to help determine if the transaction is originating from a unusual/ suspect device or location.
SOMETHING THE CONSUMER IS: This is a biometric identifier such as the person’s fingerprint, vocal pattern, or facial features. These items are nearly impossible to fake with current mobile ID tools.
Payment Quarterly | August 2015
39
BIOMETRICS
Some facial recognition software can even look for blinks and other unintentional movements to ensure that a live person (not a photo of a person) is being presented for mobile account opening and transactions. Both this approach and the previous are significantly faster and more secure than traditional KBA methods. By combining strong authentication methods with the four guidelines for end-user convenience listed in Figure 1, an organization can create an identity verification process that is both secure and user-friendly. Take the following example: A customer wants to open a new bank account from the convenience of her home, using her preferred device: her smartphone. To verify her identity during the account origination process, the bank prompts her to use the mobile phone’s camera to snap a picture of her governmentissued ID. The bank captures the data from her ID document and uses it to automatically prefill her personal information on the enrollment forms. This both increases data accuracy and saves the consumer from having to manually type that information using the mobile phone’s tiny keyboard. At the same time, mobile imaging algorithms running in the background can instantly verify the authenticity of the ID by looking for encrypted codes that are embedded 40
within the colors of authentic government-issued IDs. Thus, the mobile imaging technology is able to instantly verify the authenticity of the consumer’s ID document without requiring the consumer to leave the mobile channel. Next, the bank asks the consumer to verify that she is indeed the individual shown in the ID by taking a quick selfie. Advanced facial recognition technology compares her facial features to the authenticated ID document, tying the individual to the authenticated ID and providing a complete user authentication process. Alternatively, the bank could use other biometric identifiers such as a fingerprint or voice recognition, both of which can also be easily gathered from the consumer using existing mobile technologies. To further increase security and add another layer of identity-proofing, the bank can also use mobile device fingerprinting technologies to help determine if the transaction is originating from the location it claims to be, or to tie a device’s UDID number to a particular customer. With the example described above, the consumer remains in the mobile channel for the entire process and enjoys a fast, convenient and secure multifactor authentication and identity verification process by simply snapping a picture of their ID and a picture of themselves. The bank is able to positively verify
Payment Quarterly | August 2015
4
Figure 1
GUIDELINES TO MAINTAIN END-USER CONVENIENCE:
1. Remain within the mobile channel 2. Take place in realtime 3. Require little to no manual data entry from the user 4. If possible, run in the background and remain invisible to the user
the consumer’s identity and meet regulatory requirements for strong security, while the consumer does not even need to be aware of the strong authentication technologies that are at work in the background the whole time. As consumers increasingly turn to their mobile devices as their preferred channel for everything from shopping to conducting business, organizations will need to improve both the security and the convenience of new account enrollment and other transactions through this channel. By employing a layered combination of authentication methods that remain in the mobile channel, take place in real-time and require little to no manual data entry on the part of the consumer, businesses can strike the right balance between strong security and ease of use.
THE CHANGING FACE OF
MOBILE PAYMENTS by the end of this year, according to a recent study by Goode Intelligence.
STEVE COOK Director of Business Development Facebanx
Y
ou cannot fail to notice that biometrics is having an impact everywhere! From access controls to mobile banking and in particular it is likely to be facial recognition that will have the greatest impact over the next ten years. According to research firm Tractica; facial recognition adoption will grow from 28.5 million mobile devices in 2015 to more than 112.8 million by 2024, and at the forefront of this prediction will be mobile payments and authentication. While that is just a forecast, many mobile payment experts predict it will be far higher. As much as 450 million mobile bank customers will be using some form of biometric authentication
Many predict that paying by face or a selfie will become more standardized than the fingerprint reader on your smartphone, such as Apple’s Touch ID which uses a fingerprint sensor. This is because facial recognition is a more reliable form of biometric technology compared with a fingerprint. The fingerprint sensor has already shown its vulnerabilities and has been spoofed by various hacking organisations. This could lead to a lack of consumer confidence if they have had their fingerprint stolen. It is not an easy process to retrieve because currently all fingerprints are stored on the device which means it cannot be compared against a central database to prove that it is “really” you. Fraudsters are fully aware of this, therefore security is a very important part that biometrics must have. Facial recognition technology has around a 95% degree of accuracy. However, facial
recognition on its own should not solely be relied upon because biometrics is not an exact science and often depends on certain environmental conditions. For example shading or poor lighting, shadows, or even people of a darker skin may result in some failure rates. Therefore a multimodal approach is required and using a combination of biometrics such as fingerprint, face, voice, iris and even veins are going to be necessary as well as depending on what each user is comfortable with. If facial recognition is combined with other biometrics such as a voice, iris, or fingerprint, then this raises the levels of certainty to around 99.5%. It will also depend on the level of risk too. Just accessing your bank account or making small payments may only require one simple level of authentication. For example, when Apple Pay launched in the U.K. in July 2015, it allowed up to a £20 limit (possibly being raised to £30 later this year) with just one touch of your finger to authenticate a transaction. While this would be seen as a quick and
Payment Quarterly | August 2015
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BIOMETRICS
easy way to pay for goods and services, consumers will also have to be careful because it is very easy to make mistakes and once the payment is made and left your account, it will not be possible to “undo!� However the drive towards faster payments and a frictionless way of paying via your mobile wallet is where biometric technology is going to play a central role in the verification process. There are already many ways you can use your mobile device to pay for things and leave your physical wallet/purse and cash at home. While the fingerprint is what Apple Pay, PayPal, Samsung Pay, Android Pay, and some banks use as part of the authentication process, there are many other banks and payment services providers that are now considering a combination of face and voice recognition through your mobile app. Together with your fingerprint, they will form a part of your customer biometric profile. Some banks are already using it. In the United States, the USAA allows its digital customers a choice of either fingerprint, face, voice, or pin to verify access or transactions. They were able to recently survey over 400,000 of its customers and while the fingerprint was around 80% of what customers presently preferred, facial recognition was their second choice. 42
Remarkably, the average age of their customers using this technology on the device was 38 years old. 15% of those surveyed were also over 65 years old. Nearly half of those surveyed showed enrollment for the service was made without any advertising. This shows that widespread adoption was much easier than they had realized. In fact there are many other examples where nearly all banks are getting in on the act. Just recently Wells Fargo announced it was planning to pilot a combination of both voice and face recognition biometrics to authenticate mobile iPhone app users. In the U.K., MasterCard has just announced that they are conducting an experiment with 500 of its mobile app customers with a facial recognition trial to authenticate purchases. In China, e-commerce giant Alibaba Group and affiliated online payment service Alipay are aiming to use facial recognition technology for customers to log-in. Who knows what Apple will do next? It has been speculated that Apple is likely to launch their next range of mobile devices possibly using facial recognition with its Apple Pay although it is more likely to come in 2016. So over the next few years, using your biometric customer profile will become mainstream. Performing a selfie will be a simple way to access your mobile wallet, authenticate a payment
Payment Quarterly | August 2015
and essentially prove who you are in real-time. It will be part of the KYC (Know Your Customer) process and a bank or retail operator can see who their customers are and whether your face matches in their database. This also has many benefits to prevent fraud. It stops multiple accounts or account takeovers, and is very difficult for fraudsters to hack. Another benefit in using biometrics is that it can be seen as replacing the dependency for passwords. In Europe, a new EU Payment Services Directive 2, or PSD2, will come into force over the next two years, and within this Directive, the European Banking Authority is calling for stronger authentication processes with regard to all Internet and mobile payments as it becomes law. This will mean that every e-commerce operator in all 28 European States will have to introduce more stringent methods for authenticating transactions. Because of the unique human characteristics of biometric technology, it has been attributed as being one of the main methods in which banks and other companies can use as part of a two-factor authentication process. There is no doubt biometrics are here to stay and whether we like it or not, it will become a way of life.
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Payment Quarterly | August 2015
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VENTURE OUT!
E R U T N E V !
T U O
nt e gm rly e T s e N t l VE pecia Quar s nt a e s 足i st ym o o a t P m d e e of t h gt ica ps n d i u e t t d ar gh i t l s h ive hig t nts a e v o aym inn p he t y. in : r s t s p u tu r ind a t
E UR
d ure
S
at e F e! n Go ve u r Ap e l d i w l S yO s n n rk a Pe tm o Fo 44
Payment Quarterly | August 2015
! T U O E GONE!
G
TRAKLOAN PROMISES BENEFITS FOR PROCESSORS
one! app strives to make selling used items as easy as buying new items
The people over at Gone! asked the question, “why can’t selling used and unwanted items be as simple as buying new items online?” If this were the case, all of us would have a little extra cash in our pockets.
Currently Gone! is the only app that culminates the entire process of selling an item--from supplying packaging processors to picking to offer up your unwanted product items right and at have your doorstep, in funding one effortless partner. service.
New product gives
the right the right
This is the exact problem Gone! seeks to remedy using their efficient “Selling On Demand” service. Gone! intends to make ENTER TRAKLOAN™ getting rid of your unwanted By finding you the At the bestrecent prices TRANSACT15 show items a hassle-free, simple process for your items, or in in some San Francisco, cases CAN Capital by finding the right destination arranging a tax write unveiled offTrakLoan and — a new class and right price or value. CURRENT STATErecycling them, Gone! of financial is set products to they’d designed love for to see taken off their processor haschange diminished the game merchants pertaining who to want hands. a flexible, Gone! seeks to cut out the Gone! wants to do the over work thefor last couple sellingof used years items. cash-flow friendly, middleman business loan. and have those items you. when it comes to merchant TrakLoan’s key feature: on their It’sway paid to the destination of funding. ACH/Lockbox Gone! ismodels currently backed back using by higha fixedyour percentage choosing of through a simple Eliminating the days and ofmerchants sifting seeking end, wellloans recognized the merchant’s investors, daily app card enabled sales. process. through countlessoveronline MCAsorhaveincluding become Cygnus the So, Capital, if they Nxtp. have a slow month, physical marketplaces, trend.haggling The decline Labs,in Socialatoms, profit they TechStars, pay back a little Withless.the Great potential customer over price with potential margin buyers, on residuals, Finvestdue Ventures, to month? and various They pay back number more.as high as it is projected and waiting for a pending price compression, sale to Angelmade investors it like Andres to be, Gone! can look brightly finally process is Gone!’s less profitable primary toBarreto. switch the Benefits to processors towardsoffering the future, knowing that goal. merchant’s processor in favor Trakloan are considerable. there will never For be a shortage of of simplified ACH Plenty solutions. of people starters, have valuable there’s anpeople increase looking in to gain cold hard This is where it’s items important or just for plain customer junk that retention.cash The for typical their unwanted goods.
processors a funding foothold again.
Payment Quarterly | August 2015
45
ENTURE OUT!
MOBILE WALLET VENTURE OUT! WARS
automating identity verification, credit approval, invoicing, and credit and credit monitoring. This takes the friction out of business operations by reducing paper invoices, checks, and faxes.
APRUVE
W
Apruve estimates a 65 percent reduction in accounts receivable costs.
Apruve is looking to take the pressure off the accounts receivable department and bring some of the transformative digitization of payments to businesses. The company aims to take B2B payments and its related workflows online with online corporate accounts.
According to Apruve CEO, Michael Noble, “Apruve gives online sellers a completely
ith consumer-side payments evolving so quickly, it’s easy to forget that businesses face challenges and frustration on the B2B end that often go unaddressed.
On August 15, Apruve will launch a corporate account service, taking points from e-commerce businesses.
The Minneapolis-based company reduces B2B workflows by 46
Payment Quarterly | August 2015
automated corporate account program. Buyers get a one click, no-pay checkout and all their monthly orders are consolidated into a single invoice for payment. Typical accounts receivable costs to manage corporate accounts decrease by more than 50% with Apruve.” Business customers shopping online can claim an approved corporate account, determined by the online Apruve merchant. The business customer gains access to one-click checkout with an end of month invoice for payment, up to their credit limit. This means that accounts receivables are automated and paperless.
SLIDE
A
ccording to a CEB TowerGroup report, gift card spending is estimated to reach $149 billion by 2017. They’re quickly becoming the most requested and given items, since they’re more personal than cash, readily available from most major retailers, and give the recipient more choices. Slide, based in New York, is turning gift cards mobile. Out now on Apple’s App Store, Slide lets users add gift cards to their phone by snapping a picture of it. The balance of the card is added automatically, enabling mobile payments at linked stores. This ensures that you’ll never leave your gift cards at home again, missing out on actually spending them when you want to.
Michael Morris, Co-Founder and CEO at Slide had this to say: We’re reimagining the gift card experience. At launch, it’s all about making it easier for people to spend their gift cards before they lose or forget about them. That includes doing things like making it incredibly easy to securely save cards to your phone, looking up forgotten balances, and showing nearby stores where they can be spent. What we’ve put together looks— and feels—very different from any other mobile wallet out there, and so we hope it puts some of the joy back in giving and receiving gift cards.
Morris adds that for the future, Slide is “…really interested in P2P. We also want to make it very simple to buy and give new cards. Generally speaking, we want to help people get the maximum value out of their cards, even in the instances where a particular retailer might not have exactly what they’re looking for.”
Slide will also let users cash in the balance of their gift cards in the near future… making gift cards and gifting come full circle.
Payment Quarterly | August 2015
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MOBILE WALLET VENTURE OUT! WARS
PENNYOWL
F
or parents looking to make their children more financially literate, granting an allowance can teach proper spending and saving habits. With more tenyear-olds running around with smartphones than ever before, it makes sense to combine parental money management and financial literacy with a mobile-first design philosophy. PennyOwl, based in New York City, is looking to move parents and their kids away from cash, and towards bringing mobile convenience to the inconvenience of traditional cash-based allowances.
The PennyOwl app, available for both Apple’s App Store and Google Play provides a real money environment for parents and their children. Parents sign up their kids for an account (protected with a PIN), and then add their children to allow access. From then on, parents can set a purchase limit, and automatically send weekly allowances that are withdrawn from a linked credit or debit card. Kids can login from their own device and can manage their own savings and spending accounts, dipping their toes into something similar to mobile banking.
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Payment Quarterly | August 2015
PennyOwl is also linked to a kidfriendly marketplace, and kids can purchase board games, books, and toys with their parent’s approval. Put together, all these features provide a sense that PennyOwl has created an app that incentivizes financial responsibility in a safe and secure environment and gives parents greater oversight.
FOOTMARKS
M
obile marketing. Contextual intelligence. Locational awareness. These are great buzzwords, but one startup is making all of this a reality. Footmarks, based out of Bellevue, Washington, is taking Bluetooth low energy tech and powering beacon networks for mobile marketing and engagement opportunities. Many predict that the Internet of Things is the next big thing. The future will be connected devices working in sync to make life more convenient, and giving businesses a means to better connect with customers. With Footmarks, businesses can install connected beacons that
analyze customer proximity, collecting relevant data for a myriad of uses. Not only can Footmarks-using merchants and events organizers beam enticing offers to their visitors (promoting greater loyalty), they can also track foot traffic through Bluetoothenabled devices and gain insights into what displays work, and which one’s don't.
Footmarks has already found their beacons at the 2015 Chicago Auto Show, powering engagement zones for partners like Chevrolet, Ford, Nissan, and Volvo.
Footmarks represents the next step of analytics and Big Data, the applications of which, could prove valuable for businesses looking to garner greater insights into their customers without the intrusiveness and “creep-factor.�
Their last seed round brought in over $1.85 million in funding in October, 2014, and Footmarks remains one of the most intrepid companies in the mobile marketing and connected beacons space.
Payment Quarterly | August 2015
49
THE EMV EVOLUTION
2
MONTHS AND COUNTING TO EMV DEADLINE:
ARE YOU READY?
T MATTHEW KATZ Founder & CEO Verifi
he EMV fraud liability shift will take place on October 1st of this year, but many merchants are finding themselves ill prepared. According to Forrester Research, widespread adoption won’t occur until 2020[1]. While EMV will basically eliminate card-present fraud, experts warn merchants shouldn’t consider chip & PIN the only fraud prevention, particularly when it comes to card-not-present (CNP) fraud. Even when EMV is officially rolled out, fraudsters will still be able to copy data and create counterfeit mag-stripe cards that will be accepted at any mag-stripe terminal, as well as use counterfeit or stolen card information in CNP transactions. In fact, as EMV is officially adopted in the U.S., CNP fraud is expected to more than double by 2018 [2]. Education,
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Payment Quarterly | August 2015
prep and a proactive approach to combating online fraud are key to ensure additional costs are minimized when the liability shift goes into effect.
LACK OF AWARENESS; NEED FOR EDUCATION Currently, in the U.S., merchants are protected up to $3 billion in counterfeit credit card fraud at the point of sale, a number that will grow to $3.6 billion in the U.S. by the end of 2015. As of October 2015, a portion of this burden will impact merchants who don’t upgrade. This fraud will disproportionately affect small and mid-size merchants that sell fungible goods such as gift cards, jewelry and electronics, as well as those who will lag in upgrading their terminals [3]. According to the Aite Group, awareness of the migration to chip among small to mid-size U.S. retailers increased with two-thirds of merchants aware of the standard. There is still a significant awareness gap with the remaining one-third of merchants still unaware. While all major U.S. merchants have either begun or completed their conversion to chip-capable terminals, one survey shows up to 70 percent of small merchants will not be EMVready by the October 1 deadline. This data illustrates a clear and urgent need for aggressive and ongoing education among the small business community.
EASIEST
MEDIUM
MOST DIFFICULT
Stand alone/electronic POS device/
Semi-integrated POS device
Fully-integrated POS system
Favored by mid-sized merchants,
Favored by larger merchants, it’s more
Typically favored by smaller merchants,
allows flexibility in choice of PIN pad
complex to implement but maximizes
it requires minimal merchant effort
manufacturers, acquirer processors,
flexibility between the payments
electronic data capture device
because it’s solely managed by the
acquirers and third-party vendors.
software module/middleware and the
acquirer/processor and only offers the
Offers options enabled by a fully-
merchant’s store system’s application.
options they support.
integrated environment without the added complexity.
(Figure 1.0 - Point-of-Sale upgrades based on implementation difficulty)
EMV COMPLIANCE PREP What steps do you need to take to become EMV compliant? EMV enablement has several components.
POS DEVICE UPGRADE OR INTEGRATION: There are a ton of options out there with different ranges of quality, support, and agility to adapt to future innovation. See Figure 1.0 for some options to consider based on their implementation ease.
TRANSACTION MESSAGING Merchants will need to accommodate transaction messaging for EMV-based payments. This will require coordination with your acquirer/ processor.
TESTING QA Per Visa requirements, new terminals will need to be tested in the merchant environment to ensure EMV technology functions properly. This means each unique terminal configuration must be tested with cooperation of
the merchant’s acquirer and/or acquirer processor during the migration.
CERTIFICATION Based on limited EMV awareness, training is key to preparing for the liability shift. Sales staff, back-office staff and consumers should all be trained on a number of different aspects of EMV, including proper use for new chip cards and chip-related chargeback and dispute resolutions processes.
A COMPREHENSIVE APPROACH TO COMBATING ONLINE FRAUD
one-dimensional or static fraud strategy. By implementing the proper combination of fraud protection tools and multilayered authentication systems, merchants can maintain a secure payment processing operation without going overboard and inhibiting legitimate sales. A word of caution though, these tools should be layered and balanced for the best results. Too much frontend fraud protection means the loss in legitimate sales. Too little means adverse risk and potential profit loss.
WORDS OF WISDOM
Almost all single-layer authentication methods are imperfect. As EMV approaches and CNP fraud booms, fraudsters are becoming more advanced in their techniques to steal data, making it difficult for merchants to keep up. As merchants evaluate their compliance and capabilities, they should also examine their current fraud prevention tools on both the front and back end. With fraudsters getting smarter, merchants can’t afford to have a
The EMV compliance date is imminent. Education, prep and a comprehensive fraud strategy are key to success. A comprehensive and balanced fraud prevention strategy is critical to protect profits from fraudsters who will infiltrate the CNP channel soon and in the foreseeable future. The fact is, CNP merchants who fail to dedicate the proper attention to adapting the right tools to their business may find themselves with significant sales or fraud losses, whether they
Payment Quarterly | August 2015
51
THE EMV EVOLUTION
LIKE IT OR NOT, EMV IS
IMMINENT! There are many factors behind the disparity between large retailers and SMBs when it comes to EMV readiness.
B
y all accounts, large retailers are taking the upcoming EMV shift seriously. In fact, you’ve probably seen shiny new terminals with EMV slots showing up on the counters of your favorite big retailers. For most small to midsize businesses (SMBs), however, this doesn’t appear to be the case. There are many factors behind the disparity between large retailers and SMBs when it comes to EMV readiness. Some major factors, undoubtedly, are that large retailers have dedicated personnel to focus on these issues, and they also benefit from support provided by large processors—and even the card brands themselves. Due to a relative lack of resources, SMBs on the other hand are focused on running their day-today business, and it’s likely that they rarely ever see their solution provider or sales agent. 52
Whatever the case may be, if SMBs don’t meet EMV requirements by the October deadline, and card fraud takes place at any of their locations, they could be left holding the bag for the full cost of the fraud. They only have to look at their chargeback rates to see how damaging—or deadly—this could be to their business, especially if their margins are razor thin.
THE CERTIFICATION BOTTLENECK Aside from a lack of urgency among SMBs, the biggest problem with EMV right now is the looming certification bottleneck. And, the biggest part of this problem is the issue of certifying individual point of sale (POS) solutions. Right now, each POS integration requires a separate certification. So, for example, if a processor has customers using POS software from 200 different solution providers and an estate
Payment Quarterly | August 2015
SHAN ETHRIDGE VP & GM, North America Financial Services Group Verifone
of 8 payment terminals—1,600 different certifications (200 x 8) would be required. The time period to complete a certification typically takes 4-6 months, and this time frame is likely to increase as more POS solutions join the queue. If a POS solution provider is just starting to think about EMV certification, there’s virtually no way they’re going to be able to complete the certification process in time for the liability shift deadline, let alone upgrade all of their clients in an EMV-compliant manner. Further complicating this issue is that any time the solution provider makes changes to its software, that same software will need to be recertified! There ought to be a better way. Fortunately, there is. If you isolate the payment data to the card acceptance terminal attached to the POS solution (electronic cash register), you don’t have to certify each and every POS integration. Decoupling the POS solution from the flow of payment data in such a way means that, now, only the terminal has to be certified.
THE TIME PERIOD TO COMPLETE A CERTIFICATION TYPICALLY TAKES 4-6 MONTHS, AND THIS TIME FRAME IS LIKELY TO INCREASE AS MORE POS SOLUTIONS JOIN THE QUEUE. So, the processor I referenced earlier, which has customers using 200 POS solutions and an estate of 8 different payment terminals, now only has to certify 8 solutions, rather than 1,600. Needless to say, this is a much more manageable number. By taking the POS solution itself out of the certification equation, the process only needs to involve a simple testing process on POS solutions rather than a complete and separate certification. This can be implemented with what is known as Secure Commerce Architecture. With this type of architecture, the EMV certification process can be drastically reduced to a matter of weeks instead of months.
BEYOND EMV Beyond greatly reducing the scope of EMV certification, Secure Commerce Architecture also enhances the protection of cardholder data against cyber criminals—something not provided by EMV despite the common public misperception.
Cybercriminals are like buzzards -- they go after easy pickings. As large retailers strengthen their defenses against cybercrime, these criminals have been seeking out easier targets, notably small and midsize merchants who don’t have such defenses. Small chains and franchises with network connections are particularly attractive to criminals who can readily gain access to connected POS systems, infecting them with malware that captures cardholder information. Many small and midsize merchants utilize POS solutions that incorporate Windows-based PCs. Hackers have been targeting Windows for decades and have shown time and again the ability to circumvent security protocols. Using Secure Commerce Architecture to securely connect the payment terminal directly to the processor prevents the exposure of sensitive payment data to POS malware, thus virtually eliminating the POS as a source of large scale theft of payment data.
THE WINDS OF CHANGE Soon, consumers will have the option to pay with EMV in lieu of the magnetic stripe on their card at virtually all major retailers. It’s important for SMBs to note that this is going to rapidly force a change in consumer behavior, as well as a change in consumer expectations. When consumers get used to using EMV at large retailers,
they’re going to associate EMV with more robust security. So, smaller merchants that don’t accept EMV could be at a disadvantage—not only because they’re liable for fraud—but because they run the risk of being viewed as the less secure option. At minimum, that could erode consumer confidence and reduce customer loyalty, which would be just as devastating as bearing the cost of fraud for not being EMV capable. A new generation of terminals, which are configured to— through Secure Commerce Architecture—receive automatic security software updates and apps is on the horizon. Remote updates of such components will make it even easier for merchants to keep terminal estates up-to-date with the latest security and PCI requirements, while also enabling them to provide customizable loyalty programs that attract new and existing customers and help them to sell more. EMV is imminent, and it’s imperative for merchants of all sizes to be prepared in time for the liability shift. It’s critical for SMBs to do away with the notion that, because of their size, EMV requirements do not apply to them. To help merchants expedite the EMV certification process, processors should certify their merchants’ terminal estates with Secure Commerce Architecture to avoid the EMV certification bottleneck that’s on the horizon.
Payment Quarterly | August 2015
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GLOBAL PAYMENTS
EXCLUSIVE Q&A WITH
RAYMOND QU FOUNDER AND CEO GEOSWIFT
We speak to Raymond Qu, founder and CEO of Geoswift to get his thoughts on strengthening the e-commerce bridges between China and the rest of the world.
W
hat are some of the trends Geoswift is seeing in e-commerce between China and the rest of the world? When speaking about the potential of the e-commerce market in China recently, Jack Ma of Alibaba stated that in other countries e-commerce is a way to shop, but in China it’s a “lifestyle.” As a cross-border payments specialist between China and the rest of the world, we at Geoswift are seeing the same enormous potential in the international e-commerce market, and specifically as it pertains to China. China has quickly become the world’s second largest consumer economy, driven in large part by its dramatic increase in e-commerce activity. A recent KPMG report states that the market is expected to see $540 billion in volume with 270 million online shoppers by the end of 2015. With Chinese internet users quickly approaching 600 million, and e-commerce revenue growth (from 2009-2012) topping 70 percent compounded annually, China passed the U.S. as the world’s leading source of online retail sales at the end of 2013, according to figures from China’s Ministry of Commerce and the U.S. Department of Commerce.
The growth is expected to continue with the increased adoption of technology and shift of cultural attitudes favoring e-commerce. According to iResearch, the cross-border online retail market will increase from $1.7 billion in 2012 to $90 billion in 2015, with an annual growth rate of 75.8 percent. And this is not just a retail consumer story, as Geoswift is seeing exponential growth in the B2B payments space as well. The high growth in e-commerce has led to increased crossborder flows in and out of China from marketplaces paying their suppliers as an example. This has made the need for a local payment service provider increasingly important as foreign companies require a partner to both collect and distribute payments within China. Another important element of the Chinese marketplace is to understand the method in which consumers make their purchases. In the U.S. the predominant form of payments are executed with Visa, Mastercard or American Express cards – either debit or credit. While many people have heard of Alipay, Alibaba’s payment service, the leading means of payment in China is through the China UnionPay (CUP) card, the only domestic bank card
organization in the People’s Republic of China (PRC). With an estimated 5.4 billion cards issued in China, UnionPay has passed Visa as the largest card issuer in the world. For any e-commerce firm hoping to enter the Chinese marketplace, it is imperative to understand the trends within PRC currency policy and regulations. As discussed, China is the 2nd biggest economic entity now, but its currency is still highly regulated. As a result, international companies have many challenges in moving money in and out of China especially in bulk transaction, which is an arduous and manual process. However, over the past few years, the Chinese government has made several policy changes to open its doors to the world. Most people in the business world have read lots of news about these changes, but understanding these new policies and how to navigate the new regulatory landscape remains a challenge. To best understand this changing regulatory landscape, the key is to understand the culture of the country you are doing business in first, not simply the language. China is the best example of this. It is very difficult to get clear messages about the rules in China.
Payment Quarterly | August 2015
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GLOBAL PAYMENTS
This is at the core of what Geoswift does. Our firm is one of the only North American companies that help international firms pursue business opportunities in China. What is Geoswift’s stance on partnerships? The firm is always looking to partner with like-minded firms in the payments space. As an example, Geoswift partners with China UnionPay, both for payments within the chinese marketplace as well as abroad. As China UnionPay expands its services beyond China through its international subsidiary UnionPay International (UPI), it turned to Geoswift to leverage
56
its international footprint and expertise. Geoswift is currently the #5 non-bank acquiring member in North America for UPI. What avenues of your business are most prof itable? What other avenues of payments are you looking towards? Geoswift’s payment services are focused on the three areas it is seeing the highest demand within Chinese consumer spending internationally: travel, e-commerce, and education. Currently, Geoswift is seeing the biggest demand from e-commerce firms that come to Geoswift to access the firm’s local Chinese
Payment Quarterly | August 2015
regulatory understanding combined with its global network and payments expertise. To both meet the increasing demand and better serve its existing e-commerce and tech clients in North America, Geoswift opened an office in San Francisco in early 2015. This complements its headquarters in Hong Kong and operating offices in Shanghai, London, Vancouver, and Seattle. As China continues to open its regulatory and currency policies to the world, and the Chinese consumer demand shifts, Geoswift is in position to meet the payment needs of all parties and we look forward to continuing to drive the international economy forward.
THE EUROZONE’S NEW SEPA RULES WILL IMPACT MERCHANTS WORLDWIDE
O
nline merchants who sell into European Union countries may enjoy lower fees and faster payments as a result of new rules proposed for e-commerce and MOTO sales by the European Payments Council (EPC). The 2015 version of the Single Euro Payments Area (SEPA) Cards Standardisation (SCS) Volume covers security measures for card-not-present and online transactions. The new rules also aim to streamline payments and to increase card payments scheme transparency by setting out “a standard set of requirements to enable an interoperable and scalable card and terminal infrastructure across SEPA, based on open international card standards.” The EPC’s proposed changes are available as a 7-book download from the EPC site. After revisions based on feedback from payment service providers, banks, merchants, and other interested parties, the rules will be rolled out
“THE EPC DESCRIBES ITS WORK AS ‘EVOLUTIONARY RATHER THAN REVOLUTIONARY,’ AND THAT’S THE APPROACH THE NEW RULES FOLLOW. “
over the course of three years, and their effects will be felt beyond Europe. The new CNP (card not present) and MOTO (Mail Order Telephone Order), changes will first apply only to businesses operating within SEPA, which consists of 31 countries altogether—28 in the EU and 3 in the European Economic Area, containing some 500 million people. Eventually, merchants, banks, and processors doing business in euros from abroad will have to conform as well. Online merchants who sell into the EU now or who plan to in the future must be aware of how the European payments landscape is changing.
DARIA RIPPINGALE CEO BillPro
THE NEXT STEP IN EURO ZONE EVOLUTION The EPC describes its work as “evolutionary rather than revolutionary,” and that’s the approach the new rules follow. Over the past decade, the EPC has worked to develop SEPA as a
Payment Quarterly | August 2015
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“ULTIMATELY, THE EPC RULES FOR SEPA ARE INTENDED TO HELP EUROZONE-BASED CONSUMERS TO MAKE CASHLESS PAYMENTS WITH AS LITTLE FRICTION AS POSSIBLE.” fully integrated single-currency market, moving away from the individual country regulations and payments procedures that prevailed before the introduction of the euro. Already, the rules have been updated for card-present transactions within SEPA, with an adoption deadline of January 2017. Companies outside the Eurozone that make euro payments must comply with new SEPA direct debit and direct deposit guidelines by November 2016.
HOW SEPA CHANGES WILL AFFECT ONLINE MERCHANTS Ultimately, the EPC rules for SEPA are intended to help Eurozonebased consumers to make cashless payments with as little friction as possible. Coming into compliance with any new set of regulations involves time and money, but the bottom line for merchants is that selling into SEPA will be easier and more cost-efficient in the years ahead. Three key areas in which 58
merchants will feel an impact are expense reduction, fraud prevention, and funds transfer speed. Expense reduction will come in several ways. Companies that sell into SEPA will no longer have to maintain bank accounts in each SEPA country in which they do business, opting instead for a single account in one country. Streamlining payment methods will also save merchants money on card transaction fees and may result in increased consumer spending as barriers to purchases fall. In addition, new card payments scheme rules will be more transparent and open, creating more competition for merchant business and more options to suit merchant needs. For example, schemes will not be allowed to discriminate among qualified issuers and acquirers when granting licenses, and must make public the implementation specifications they support as well as their licensee setup rules. EPC states that its security guidelines aren’t mean to be rigid, due to the changing nature of security risks and prevention, but are intended to address all links in the payment chain and to align with global payment security standards. Book 4 of the new SEPA standards volume outlines security requirements that will be required for credential and CVM security, MOTO payments,
Payment Quarterly | August 2015
remote and physical points of interaction, mobile authentication security, data protection, and consumer device guidelines. This standardization of security practices should make it easier for merchants to detect and prevent fraudulent purchases. As payments across SEPA become more standardized and streamlined, the European Commission expects to see savings on transfer times and bank fees that could total EU123 billion by the year 2020, a savings that could spur SEPA economic growth.
WHAT MERCHANTS NEED TO DO NOW Merchants within the SEPA region are largely already compliant, as are payments service providers and banks. For merchants outside the region that sell into SEPA in euros, now is the time to check with your PSP and bank to learn what steps they are taking to offer SEPA compliant services. Even if your business doesn’t currently have customers within SEPA, it’s worth taking the time now to lay the groundwork for expansion into the Eurozone by finding out how your provider and bank plan support SEPA. As the European Union moves closer to its goal of a streamlined and more efficient payments ecosystem, merchants everywhere who want to do business in euros must make plans to stay in step with SEPA requirements, and they will reap the rewards of doing so.
THE EMV EVOLUTION
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GLOBAL PAYMENTS
CATERING TO THE
INTERNATIONAL TRAVELER: U.S. MERCHANTS CAN TAP INTO BUYING POWER OF MILLIONS OF TOURISTS
T
he Office of Travel and Tourism Industries for the United States projects international travel into the U.S. will grow to 90 million by 2019, up from 73.9 million in 2014.
“U.S. merchants should know that by accepting Discover Card, they accept all cards on Discover Global Network,” said Joe Hurley, SVP of Global Business Development at Discover.
This increase in travelers presents U.S. merchants with an opportunity to further tap into international buying power by simply educating their employees that if the merchant accepts Discover Card, they also can accept international credit cards from a selection of major countries.
“We have strategic alliances with some of the largest international domestic networks around the world, including UnionPay in China, BC card from South Korea, JCB in Japan, and RuPay from India. If tourists from these countries know that a U.S. merchant accepts their
KEVIN XU Editor-in-Chief Payment Week
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Payment Quarterly | August 2015
home country’s credit card, the likelihood of that tourist visiting and further frequenting the merchant for purchase increases.” The majority of travelers to the U.S. in 2014 came from Mexico and Canada, with the U.S. Department of Commerce predicting that visitors from other countries such as China, Colombia, India, and Taiwan will increase. The Office of Travel and Tourism Industries also reported that the spending within the U.S. from international tourists grew to $222.3 billion in 2014.
this area. In particular, merchants should be aware of the opportunity to specifically cater to Chinese travelers and their significantly higher spending power.
THE STEPS TO ACCEPTANCE A growing trend around the world concerns domestic payment networks. Several countries have created their own payment networks, such as China’s UnionPay, BC card in South Korea, India’s RuPay, and Nigeria’s Interswitch.
For example, while the average spending of all visitors to the U.S is estimated to be $4,500 per person, the average visitor from China spent well over this amount – $7,200 – in 2013, according to the U.S. Travel Association.
These domestic networks formed network alliances with Discover Network, so their cardmembers can use their cards where Discover is accepted when they come to the U.S. At merchant locations, these cards will be processed like any other Discover Card via the Discover Network rails.
The Department of Commerce also reports that between 2013 and 2018, the number of Chinese tourists will increase 138.6 percent.
This ultimately means a seamless, familiar payment experience for both merchant and consumer, improving the retail experience for all parties.
As the economies of other countries strengthen, there’s a trending movement away from cash toward credit, debit, and prepaid cards, and international consumers want to use the same cards when they travel abroad as they do at home. Merchants that continuously evaluate their payment acceptance methods and add acceptance for international networks are poised to tap into this growing revenue segment as more tourists shop in the U.S.
The content featured in this article was provided by Discover Network.
“China is one of the fastest growing economies in the world, and we are seeing more and more Chinese tourists coming to the U.S.,” added Hurley. “They have a higher propensity to spend more on high-end luxury goods, and look for quality products with strong brand ties.” Merchants prepared to accept international payment cards could experience profit gains in Payment Quarterly | August 2015
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DIGITAL BANKING
THE DIGITAL BANKING
TRANSFORMATION ARE YOU FOCUSING IN THE RIGHT DIRECTION? BY: SAMEER KISHORE
“Banks need to realize that digital transformation is not only about modernizing digital channels but also building the right mix of
D
“Bricks and Clicks” and re-inventing their processes.”
igital has emerged as one of the most disruptive trends, changing the way financial services are offered to customers. In addition to customer behaviour, new technology innovation and recent regulations are equally responsible for this change. While most banks have considered digital transformation to be synonymous with channel transformation, they seem to have ignored their back-office. We believe that Digital Transformation is a holistic approach that may begin with channel omnification, but requires equal attention to the middle and back-office, which form the heart of the core banking system.
It is also important for banks to assess their current digital maturity and develop a comprehensive action plan aligned to their strategic and competitive priorities. Let’s demystify digital banking transformation and discuss the most appropriate starting point for commencement of their digital journey.
ADOPTION OF DIGITAL TECHNOLOGY Digital Commerce has made significant progress over the last few years with a continued double digit growth since 2013. The success of high growth industries such as Travel, Transportation, and Logistics can be indisputably attributed to a holistic digitization of their businesses. Though banks
have been late adopters, many are progressing fast and leading this adoption. A recent analysis shows that over the next five years, more than two-thirds of banking customers will be self-directed and highly adapted to the digital world. The adoption of digital transformation in banking is not only driven by customer behaviour and expectations, but also by new technologies and favorable regulations that have aided this trend (new banks only need to maintain up to 4.5 percent of Tier 1 capital, much less than the existing players). Moreover, the financial services industry is also facing incredible pressure from fintech ventures
Payment Quarterly | August 2015
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DIGITAL BANKING
and start-up monoline providers who have gained considerable momentum over the last few years, leveraging digital business processes to launch socially engaging and branchless services. Such providers are predicted to erode more than one-third of traditional banking revenues by 2020 (Figure 1). These new players are unburdened by regulations, legacy IT systems, unwieldy branch networks or the need to protect existing businesses and stereotypes. These newcomers are projected to grow to $4.7 trillion by the end of this year.
DECRYPTING THE DIGITAL JOURNEY Banks’ whose digital strategy is centered on attracting new customers alone have a lot to learn from other industries that have built successful digital businesses. As an example, DELL has been an early adopter of digital transformation, leveraging digital channels, social media, cloud, and analytics along with a systematic plan to overhaul legacy infrastructure and take out costs. This has not only improved cycle time and customer satisfaction but has also resulted in freeing up precious capital for innovation. DELL’s digital commerce engine has achieved phenomenal growth and results, some of which are shown below (Figure 2.) Though large banks have started with a big-bang approach and earmarked large budgets for digital programs, most of them have not been able to progress beyond channels due to their legacy back-office. On the other hand, emerging players have adopted a more focused approach, embracing digital to be nimble and stay ahead of the curve.
Figure 1: New Fintech ventures & start-up monoline providers are eating into traditional banking revenues
In my view digital transformation is all about engaging customers, while radically improving operations, enabled by technology (Figure 3).
Figure 3: DELL’s view on digital banking transformation
We believe that it is about better engaging stakeholders by improving customer experience, enabling agility with emerging new technologies such as cloud & analytics and extending functionality through new target operating models such as mobile wallets & NFC.
ASSESSING YOUR DIGITAL MATURITY Digital technology investments without a clear direction cannot help banks achieve the required competitive advantage. Banks need to map their current digital state to a comprehensive action plan that is completely aligned to their strategic and competitive priorities. Figure 3: DELL’s digital transformation improved customer experience and sales conversion rate by 30%
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Payment Quarterly | August 2015
Figure 4:
DELL has developed a comprehensive Digital Maturity Model – DMM™ (Figure 4) to help banks assess their current digital readiness and draw out an action plan to digitally transform their business. DMM™ maps to a five stage maturity process (Figure 5), which aims to move towards a completely adaptive and innovative bank of the future, at the end. Our analysis of top global banks shows that most of them are fairly early in their digital journey. 80 percent are still at levels 2 and 3 of the Digital Maturity Model. They are largely focused on transaction services through online & mobile channels and adoption of selfservice tools. On the other hand, new players such as FIDOR (Celent Model Bank of the year 2015) are continuously innovating and providing uninterrupted access to services through digital channels leading the digital pack at the highest level (Level 5 Maturity). Banks need to realize that digital
transformation is not only about modernizing digital channels but also building the right mix of “Bricks and Clicks” and reinventing their processes.
CUSTOMERS NEED BANKING AND NOT BANKS While there is no silver bullet for becoming the “digital bank of the future”, it is clear that each bank will need to develop a unique digital strategy (Figure 6) that is suited to their target customer segments, product suite and business objectives, while also addressing challenges around cost optimization, customer centricity and competitive differentiation.
DELL RECOMMENDATIONS Move from product manufacturer to aggregator of relationships and data Back office simplification and process improvements cannot be ignored
In summary, customers are now looking for a unique experience which is not possible without a holistic convergence of front, middle and back-office functions, while leveraging new technologies for rapid growth and adaptation.
Capture vital digital cues and context about your customers Look outside and adapt likely approaches for success and innovation
Payment Quarterly | August 2015
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DIGITAL BANKING
Figure 5: DMM Levels of digital maturity
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